<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
American Brands, Inc.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
American Brands, Inc.
------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2).
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
(4) Proposed maximum aggregate value of transaction:
- ---------
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
AMERICAN BRANDS, INC.
1700 East Putnam Avenue
Old Greenwich, Connecticut 06870
March 13, 1995
Dear Stockholder:
The 1995 Annual Meeting of stockholders will be held on Tuesday, May 2, 1995
at 10:00 a.m. at the Stamford Center for the Arts, Atlantic Street and Tresser
Boulevard, Stamford, Connecticut. You are invited to attend the meeting to
consider personally the business described in the following notice of meeting
and proxy statement.
At the meeting, there will be a report to the stockholders on the progress of
the Company during the past year. A discussion period will also take place
during which stockholders will have an opportunity to discuss matters of
interest concerning the Company.
A feature of these Annual Meetings has been the attendance in person of many
stockholders, some with large holdings and some with small holdings. This has
been most welcome. It is important to ensure that your shares be represented at
the meeting whether or not you personally plan to attend. We urge you to
promptly complete, date and return your proxy in the enclosed postpaid return
envelope provided for that purpose.
Sincerely yours,
/s/ Thomas C. Hays
Thomas C. Hays
Chairman of the Board
and Chief Executive Officer
<PAGE>
AMERICAN BRANDS, INC.
NOTICE OF MEETING
-----------------
March 13, 1995
The Annual Meeting of stockholders of American Brands, Inc. will be held at
the Stamford Center for the Arts, Atlantic Street and Tresser Boulevard,
Stamford, Connecticut, at 10 o'clock in the forenoon (Eastern Daylight Time) on
Tuesday, May 2, 1995, for the following purposes:
A. To elect three directors for a term expiring at the 1998 Annual
Meeting or until their successors have been duly elected and
qualified;
B. To consider and vote on the election of Coopers & Lybrand L.L.P. as
independent accountants of the Company for the year 1995;
C. To consider and vote on a proposal to approve the Stock Plan for
Non-employee Directors;
D. To consider and vote on six stockholder proposals set forth in the
accompanying Proxy Statement, if such proposals are brought before
the meeting; and
E. To transact such other business as may properly come before the
meeting.
The stock transfer books will not be closed, but holders of Common Stock and
$2.67 Convertible Preferred Stock, to be entitled to vote, must be holders of
record at the close of business on March 3, 1995.
/s/ Louis F. Fernous, Jr.
Louis F. Fernous, Jr.
Vice President and
Secretary
<PAGE>
PROXY STATEMENT
The Company's principal executive offices are located at 1700 East Putnam
Avenue, Old Greenwich, Connecticut 06870. This Proxy Statement and accompanying
proxy are first being sent or given to stockholders on or about March 13, 1995.
The accompanying proxy is solicited by the Board of Directors. It may be
revoked at any time before being voted by written notice given to the secretary
of the meeting or by the delivery of a later-dated proxy. Proxies properly
executed, duly returned to the Company and not revoked, will be voted for the
election of directors (except to the extent that authority therefor is
withheld) and on the other Items described in this Proxy Statement in
accordance with the instructions in the proxy. The Board of Directors is not
aware at the date hereof of any other matter proposed to be presented at this
meeting, and does not believe that any matter may be properly presented other
than the election of directors and Items 2 through 9. If any other matter is
properly presented, the persons named in the enclosed form of proxy will have
discretionary authority to vote thereon according to their best judgment.
Presence at the meeting does not of itself revoke the proxy.
VOTING
The only securities of the Company entitled to be voted are shares of Common
Stock and $2.67 Convertible Preferred Stock and only holders of record at the
close of business on March 3, 1995 are entitled to vote. Holders of Common
Stock are entitled to one vote per share and holders of $2.67 Convertible
Preferred Stock are entitled to three-tenths of a vote per share. There were
192,246,971 shares of Common Stock and 507,945 shares of $2.67 Convertible
Preferred Stock outstanding at March 3, 1995.
The affirmative vote of shares representing a majority in voting power of the
shares of the Company's Common Stock and $2.67 Convertible Preferred Stock,
voted together as one class, present in person or represented by proxy and
entitled to vote at the meeting, a quorum being present, is necessary for the
adoption of each of Items 2 through 9. Directors shall be elected by a
plurality of votes cast. Proxies marked as abstentions, or to withhold a vote
from a nominee as a director in the case of the election of directors, will
have the effect of a negative vote. Broker non-votes (where a nominee holding
shares for a beneficial owner has not received voting instructions from the
beneficial owner with respect to a particular matter and such nominee does not
possess or choose to exercise his discretionary authority with respect thereto)
will be considered as present at the meeting but not entitled to vote with
respect to the particular matter and will therefore have no effect on the vote.
As a matter of policy, stockholder proxies, ballots and tabulations that
identify individual stockholders are kept secret and access thereto is limited
to the independent Inspectors of Election and certain employees of the Company
who must acknowledge their responsibility to comply with such policy.
ITEM 1
- ------
ELECTION OF DIRECTORS
The Board of Directors currently consists of 11 members. The Company's
Certificate of Incorporation provides for the classification of the Board of
Directors into three classes, as nearly equal in number as possible, with
staggered terms of office and provides that upon the expiration of the term of
office for a class of directors, nominees for such class shall be elected for a
term of three years or until their successors are duly elected and qualified.
At this meeting, three nominees for
1
<PAGE>
director are to be elected as Class III directors. The nominees are Messrs.
William J. Alley, John T. Ludes and Peter M. Wilson. The four Class I and four
Class II directors have one year and two years, respectively, remaining on
their terms of office. If no contrary indication is made, proxies in the
accompanying form are to be voted for such nominees or, in the event any such
nominee is not a candidate or is unable to serve as a director at the time of
the election (which is not now expected), for any nominee who shall be
designated by the Board of Directors to fill such vacancy, unless the Board of
Directors shall determine to reduce the number of directors pursuant to the By-
laws. All nominees are members of the present Board. All nominees and all
current Class I and Class II directors were elected by the stockholders, except
that Mr. Peter M. Wilson was elected by the Board of Directors as a Class III
director effective February 1, 1994, and Mr. John T. Ludes was elected by the
Board of Directors as a Class III director effective January 1, 1995.
There are set forth below opposite the names of the nominees and Class I and
Class II directors their present positions and offices with the Company and
their principal occupations during the past five years, their ages and the year
first elected a director of the Company. There are also set forth below
opposite their names under the heading "Shares of Common Stock beneficially
owned", the shares of Common Stock of the Company beneficially owned by them on
February 9, 1995 (except, as stated in Note (c) below, beneficial ownership is
disclaimed as to certain shares), including shares of Common Stock (if any) of
which they had the right on such date to acquire beneficial ownership pursuant
to the exercise on or before April 10, 1995 of options granted by the Company,
plus the number (if any) of shares of Common Stock held on December 31, 1994 by
the Trustee of the Profit-Sharing Plan of the Company attributable to Company
contributions and to employee pre-tax contributions made through payroll
deductions that is equivalent as of that date to their undivided proportionate
beneficial interests in all such shares. Beneficial ownership information is
also provided below for the executive officers listed in the Summary
Compensation Table on page 8. In addition, Mr. Arnold Henson, an executive
officer listed in the Summary Compensation Table, had such beneficial ownership
of 354,314 shares of Common Stock on February 9, 1995. In no instance does the
security ownership of any of the nominees or other directors or executive
officers listed below equal or exceed one percent of the outstanding shares of
Common Stock of the Company. The information as to security holdings is based
on information received by the Company from the nominees and other directors
and executive officers, from the Corporate Employee Benefits Committee of the
Company and from the Trustee.
2
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
PRESENT POSITIONS AND OFFICES WITH COMMON STOCK
THE COMPANY AND PRINCIPAL YEAR FIRST BENEFICIALLY
OCCUPATIONS DURING ELECTED OWNED
NAME THE PAST FIVE YEARS AGE DIRECTOR (a)(b)(c)
---- ---------------------------------- --- ---------- ------------
NOMINEES FOR DIRECTOR--CLASS III--TERM EXPIRING 1998
<C> <S> <C> <C> <C>
William J. Alley* Retired since 1994; Chairman 65 1979 967,175
of the Board and Chief
Executive Officer of
American Brands, Inc. prior
thereto
John T. Ludes* President and Chief 58 1995 209,200
Operating Officer of
American Brands, Inc. since
January 1995; Group Vice
President of American
Brands, Inc. from 1988 to
1994; President and Chief
Executive Officer of
Acushnet Company (golf and
leisure products), a
subsidiary of American
Brands, Inc., from 1982 to
1994
Peter M. Wilson* Chairman and Chief Executive 53 1994 136,700
of Gallaher Limited (tobacco
products, distilled spirits,
retail distribution and
housewares), a subsidiary of
American Brands, Inc., since
February 1994; Deputy
Chairman of Gallaher Limited
from 1989 to 1994; Chairman
and Chief Executive of
Gallaher Tobacco Limited
(tobacco products), a
subsidiary of Gallaher
Limited, since 1987
CLASS I DIRECTORS--TERM EXPIRING 1996
Thomas C. Hays* Chairman of the Board and 59 1981 459,818
Chief Executive Officer of
American Brands, Inc. since
January 1995; President and
Chief Operating Officer of
American Brands, Inc. prior
thereto
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
PRESENT POSITIONS AND OFFICES WITH COMMON STOCK
THE COMPANY AND PRINCIPAL YEAR FIRST BENEFICIALLY
OCCUPATIONS DURING ELECTED OWNED
NAME THE PAST FIVE YEARS AGE DIRECTOR (a)(b)(c)
---- ---------------------------------- --- ---------- ------------
<C> <S> <C> <C> <C>
Sidney Kirschner President and Chief 60 1991 1,300
Executive Officer of
Northside Hospital, Inc.
since 1992; Chairman of the
Board, President and Chief
Executive Officer of
National Service Industries,
Inc. (lighting equipment,
textile rentals and
specialty chemicals) from
1991 to 1992; President and
Chief Executive Officer of
National Service Industries,
Inc. prior thereto
Gordon R. Lohman President and Chief 60 1990 1,200
Executive Officer of AMSTED
Industries Incorporated
(products for the railroad,
construction and building
markets) since 1990;
President and Chief
Operating Officer of AMSTED
Industries Incorporated
prior thereto
Charles H. Pistor, Vice Chair of Southern 64 1985 3,400
Jr. Methodist University since
1991; Chairman and Chief
Executive Officer of
NorthPark National Bank
prior thereto
CLASS II DIRECTORS--TERM EXPIRING 1997
Eugene R. Anderson* Partner, Anderson Kill Olick 67 1980 9,000
& Oshinsky, P.C. (law firm)
Patricia O. Ewers President, Pace University 59 1991 700
since 1990; Vice President,
Dean of Faculties, DePaul
University prior thereto
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SHARES OF
PRESENT POSITIONS AND OFFICES WITH COMMON STOCK
THE COMPANY AND PRINCIPAL YEAR FIRST BENEFICIALLY
OCCUPATIONS DURING ELECTED OWNED
NAME THE PAST FIVE YEARS AGE DIRECTOR (A)(B)(C)
---- ---------------------------------- --- ---------- ------------
<C> <S> <C> <C> <C>
John W. Johnstone, Chairman and Chief Executive 62 1989 1,400
Jr. Officer of Olin Corporation
(chemical, metal and
defense-related products)
since 1994; Chairman,
President and Chief
Executive Officer of Olin
Corporation prior thereto
Wendell J. Kelley Retired since 1991; Chairman 68 1988 3,000
and Chief Executive Officer
of Illinois Power Company
prior thereto
</TABLE>
- --------
* Member of Executive Committee of the Company's Board of Directors. Mr. Ludes
also served on the Board of Directors of the Company from 1987 through 1989.
(a) The numbers of shares attributable to Company contributions under the
Profit-Sharing Plan of the Company included in the numbers shown above are
as follows: William J. Alley, 635; Thomas C. Hays, 1,977; Arnold Henson,
18,578; and John T. Ludes, 2,458. The numbers of shares attributable to
employee pre-tax contributions under such Plan included in the numbers
shown above are: Thomas C. Hays, 5,950; Arnold Henson, 815; and John T.
Ludes, 417.
(b) The number of shares of which the nominees and Class I and Class II
directors and Mr. Henson had the right to acquire beneficial ownership
pursuant to the exercise on or before April 10, 1995 of options granted by
the Company included in the numbers shown above are as follows: William J.
Alley, 819,850; Thomas C. Hays, 369,650; Arnold Henson, 224,350; John T.
Ludes, 174,650; and Peter M. Wilson, 134,600. Inclusion of such shares does
not constitute an admission by any nominee, director or executive officer
that he is the beneficial owner of such shares. The number of shares of
restricted stock granted under the Company's 1990 Long-Term Incentive Plan
included in the numbers shown above for Mr. Alley is 16,320.
(c) To the best of the Company's knowledge, each nominee and Class I and Class
II director and executive officer named above has sole voting and
investment power with respect to shares shown after his name above, other
than with respect to the shares listed in Note (b) above and except as
follows: Mr. Hays shares voting and investment power as a co-trustee of
various family trusts with respect to 8,062 shares and with respect to
which shares he disclaims beneficial ownership and Mr. Hays has no voting
and investment power with respect to 4,000 shares held in trust for the
benefit of his wife and with respect to which shares he disclaims
beneficial ownership; and Mr. Pistor shares voting and investment power
with his wife with respect to 2,400 shares. The Trustee of the Profit-
Sharing Plan has agreed to vote the shares it holds in the Trust in
accordance with instructions received from members of the Plan and shares
as to which instructions are not received are voted by the Trustee
proportionally in the same manner as shares as to which the Trustee has
received instructions.
5
<PAGE>
Nine meetings of the Company's Board of Directors were held during the
Company's last fiscal year. Each director of the Company attended at least 75%
of the aggregate of (i) all meetings of the Board of Directors and (ii) all
meetings of committees of the Board of Directors of which the director was a
member, during the periods that the director served during the Company's last
fiscal year. In addition to participation at Board and committee meetings, the
Company's directors discharge their responsibilities throughout the year
through personal meetings and other communications, including considerable
telephone contact, with the Chairman and others regarding matters of interest
and concern to the Company.
In addition to the Executive Committee, the Board of Directors has an Audit
Committee, a Compensation and Stock Option Committee and a Nominating
Committee. The Audit Committee is comprised of Messrs. Anderson, Kirschner,
Pistor and Dr. Ewers. Its functions include recommending annually to the Board
of Directors a firm of independent accountants to audit the Company's financial
statements and the scope of such firm's audit, reviewing reports and
recommendations of the Company's independent accountants, reviewing the scope
of all internal audits and reports and recommendations in connection therewith
and reviewing nonaudit services provided by the Company's principal independent
accountants. It held five meetings during the Company's last fiscal year. The
Compensation and Stock Option Committee is comprised of Messrs. Anderson,
Johnstone, Kelley and Pistor. It administers the Company's Stock Option Plans
and 1990 Long-Term Incentive Plan, and its functions include the designation of
key employees to whom stock options, stock appreciation rights, restricted
stock, performance awards and other stock-based awards may be granted, and,
within specified limits, the number of shares that may be granted to any such
key employee. Its functions also include setting compensation for officers
employed by the Company and holding the office of Vice President or a more
senior office and the determination of the award to such persons of incentive
compensation under Article XII of the By-laws of the Company. It held six
meetings during the Company's last fiscal year. In addition, the Company has a
Salary Committee comprised of Messrs. Hays and Ludes and five additional
executive officers. Its functions include the establishment of salary
administration guidelines for the Company and its domestic subsidiaries,
applicable to all employees other than officers of the Company whose salaries
are required by the By-laws of the Company to be fixed by the Compensation and
Stock Option Committee, and, in accordance with such guidelines, the approval
of all salaries above a specified amount, and recommending to the Board of
Directors compensation arrangements for nonmanagement directors. It held one
formal meeting during the Company's last fiscal year and acted on numerous
other occasions by written consent. The Nominating Committee is comprised of
Messrs. Anderson, Johnstone, Lohman and Pistor. Its functions include
recommending persons for nomination for election as members of the Company's
Board of Directors. The Nominating Committee held two meetings during the last
fiscal year. Its functions also include recommending directors for membership
on the Compensation and Stock Option Committee. Stockholders wishing to
recommend persons for consideration by the Nominating Committee as nominees for
election to the Company's Board of Directors can do so by writing to the
Secretary of the Company at 1700 East Putnam Avenue, Old Greenwich, Connecticut
06870, giving each such person's name, biographical data and qualifications.
Any such recommendation should be accompanied by a written statement from the
person recommended of his consent to be named as a nominee and, if nominated
and elected, to serve as a director. The Company's Certificate of Incorporation
also contains a procedure for stockholder nomination of directors.
Mr. Alley is a director of CIPSCO Incorporated, Central Illinois Public
Service Company, Olin Corporation and Rayonier Inc.; Mr. Johnstone is a
director of Phoenix Home Life Insurance Company; Mr. Kelley is a director of
Magna Group, Inc.; Mr. Lohman is a director of CIPSCO Incorporated and Central
Illinois Public Service Company; and Mr. Pistor is a director of AMR
Corporation, Centex Corporation and Oryx Energy Company.
6
<PAGE>
For information with respect to the beneficial ownership of securities of the
Company by directors and executive officers as a group, see "Certain
Information Regarding Security Holdings".
During the last fiscal year, a subsidiary of the Company made purchases from
Olin Corporation, of which Mr. Johnstone is Chairman and Chief Executive
Officer and a director, in the amount of approximately $914,216. The
transactions were made in the ordinary course of business and on terms no less
favorable to the Company's subsidiary than would have prevailed in similar
transactions with any other supplier. The Company's subsidiary intends to
continue to make purchases from Olin Corporation during 1995 if it determines
that it may do so on terms beneficial to it.
Each director and officer of the Company who is subject to Section 16 of the
Securities and Exchange Act of 1934 is required to report to the Securities and
Exchange Commission by a specified date his or her beneficial ownership of or
transactions in the Company's securities. Reports received by the Company
indicate that all such directors and officers have filed all requisite reports
with the Securities and Exchange Commission on a timely basis during or with
respect to 1994.
7
<PAGE>
EXECUTIVE COMPENSATION
There is set forth in the following table a summary of all compensation paid
to, or earned by, the five most highly compensated executive officers during
each of the Company's last three fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------- ---------------------------------
AWARDS PAYOUTS
----------------------- ---------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL BONUS (2) COMPENSATION (3) AWARDS (4) OPTIONS/SARS PAYOUTS COMPENSATION
POSITION YEAR SALARY ($) ($) ($) ($) (#) ($)(5) ($)(6)
- ------------------ ---- ---------- --------- ---------------- ---------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WILLIAM J. ALLEY (1) 1994 1,053,600 1,002,754 435,341 569,160 -0- 1,763,775 448,311(7)
Chairman of the Board 1993 1,053,600 862,125 4,313,095 -0- 163,200 -0- 276,052
and Chief Executive 1992 1,003,400 1,008,782 5,910 -0- 120,000 -0- 304,487
Officer of American
Brands, Inc.
THOMAS C. HAYS 1994 655,800 433,600 198,133 -0- 130,000 113,063 272,596(7)
President and Chief 1993 655,800 394,158 2,122,937 -0- 81,600 -0- 149,397
Operating Officer of 1992 624,600 506,630 2,955 -0- 60,000 -0- 169,063
American Brands, Inc.
ARNOLD HENSON (1) 1994 552,800 400,300 207,715 -0- -0- 634,997 246,201(7)
Executive Vice President 1993 552,800 363,889 2,116,887 -0- 58,750 -0- 131,435
and Chief Financial 1992 526,500 425,791 2,128 -0- 43,200 -0- 147,250
Officer of American
Brands, Inc.
JOHN T. LUDES 1994 365,600 331,000 96,852 -0- 60,000 45,225 156,369(7)
Group Vice 1993 365,600 210,000 1,010,458 -0- 32,650 -0- 71,453
President of American 1992 348,200 219,803 1,182 -0- 24,000 -0- 86,678
Brands, Inc.
PETER M. WILSON 1994 477,280 361,939 10,859 -0- 38,000 33,919 -0-
Chairman and Chief 1993 426,767 264,412 5,344 -0- 36,500 -0- -0-
Executive of Gallaher 1992 482,309 281,267 887 -0- 18,000 -0- -0-
Limited
</TABLE>
- --------
(1) Messrs. Alley and Henson retired on December 31, 1994.
(2) Article XII of the By-laws of the Company provides for payment of incentive
compensation to members of the Management Group (consisting generally of
persons elected to the office of Vice President of the Company or a more
senior office). An amount equal to 1/2 of 1% of Adjusted Income From
Continuing Operations (as defined in Article XII) is made available for
allotment annually if a cash dividend has been paid on the Common Stock of
the Company. Of the amount available for incentive compensation, 18% is
allotted to the Chairman of the Board and the remainder is available to the
Management Group on the following basis: 30% of the total amount available
is allotted by Article XII to the members of the Management Group other
than the Chairman of the Board in proportion to their fixed salaries, and
the balance may be allotted to them by the Compensation and Stock Option
Committee, entirely at its discretion as to amounts and individuals. The
Compensation and Stock Option Committee has the authority to reduce the 18%
allotment to the Chairman of the Board and the 30% allotment to any member
of the Management Group. Payments are made in cash as soon as practicable
after the award is determined after the end of the year. Mr. Wilson
participated in an incentive compensation plan for key employees of
Gallaher Limited. Under such plan, an amount equal to 0.389% of
consolidated profits before tax (as defined in such plan) is made available
for allotment annually. Of the amount made available for incentive
compensation, 18.5% is allotted to the Chairman of Gallaher Limited.
8
<PAGE>
(3) At the 1993 Annual Meeting, stockholders approved Company contributions to
trusts established by executives in order to fund supplemental retirement
and profit-sharing benefits under the Company's Supplemental Retirement
Plan on a current basis. The executive is taxed on the contribution when
made and the earnings on the trust, but the Company provides the executive
with an additional amount to pay the taxes. The amounts distributed to the
executive at retirement, however, are not subject to tax and therefore the
Company contributes to the trusts only the present value of the
executive's after-tax benefit instead of being required to provide the
executive's pre-tax benefit upon retirement. The amounts set forth in the
"Other Annual Compensation" column for 1994 and 1993 include the amounts
paid to the executive for reimbursement of taxes as follows:
<TABLE>
<CAPTION>
1994 1993
-------- ----------
<S> <C> <C>
William J. Alley...................................... $378,913 $4,281,417
Thomas C. Hays........................................ 169,919 2,107,098
Arnold Henson......................................... 187,400 2,105,483
John T. Ludes......................................... 85,563 1,004,122
</TABLE>
The contributions to the trusts for 1993 were to fund the supplemental
retirement and profit-sharing benefits accrued for all prior years of
service which had previously been unfunded. The amounts contributed in each
year after 1993 will typically fund the supplemental retirement and profit-
sharing accruals for that year only and the related tax reimbursement
payment in years after 1993 should therefore be lower and were lower in
1994. The remaining amounts in the "Other Annual Compensation" column for
1994 and 1993 and the amounts for 1992 are cash dividend equivalents paid on
performance awards.
(4) The only restricted stock holding on December 31, 1994 was 16,320 shares
held by Mr. Alley with a value on that date of $612,000. The value set
forth in the table above is the market value of the shares on the date of
grant. The vesting of this restricted stock award made to Mr. Alley in
1994 is conditioned on Mr. Alley remaining in the employ of the Company
through the end of 1994 and being willing to serve as a member of its
Board of Directors and Chairman of the Executive Committee of its Board of
Directors until December 31, 1995. Dividends are paid on the restricted
stock.
(5) The LTIP Payout is the value of performance share awards for the
performance period 1992 through 1994. The amount also reflects the value
of performance share awards for performance periods 1993 through 1995 and
1994 through 1996 for Messrs. Alley and Henson that became vested as a
result of their retirement.
(6) These amounts include Company contributions to the tax qualified Profit-
Sharing Plan of the Company and supplemental profit-sharing amounts under
the Company's Supplemental Retirement Plan as described below.
Company contributions to the tax qualified Profit-Sharing Plan of the
Company were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
William J. Alley.................................. $18,486 $22,527 $23,134
Thomas C. Hays.................................... 18,486 22,527 23,134
Arnold Henson..................................... 18,486 22,527 23,134
John T. Ludes..................................... 18,486 22,527 23,134
</TABLE>
The Supplemental Retirement Plan provides for those amounts that would have
been contributed under the Company's tax qualified Profit-Sharing Plan but
for certain Internal Revenue Code
9
<PAGE>
limitations. Supplemental profit-sharing amounts credited under the
Company's Supplemental Retirement Plan were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
William J. Alley............................... $181,821 $148,117 $209,202
Thomas C. Hays................................. 92,671 75,139 111,072
Arnold Henson.................................. 78,948 60,231 90,304
John T. Ludes.................................. 43,825 28,347 50,170
</TABLE>
Earnings had been credited on supplemental profit-sharing balances as if the
balances were invested in an investment selected by the Company's Trusts
Investment Committee which was the Salomon Brothers Inc Broad Investment
Grade Index for 1993 and the MAS Pooled Trust Fund-Fixed Income Portfolio
for 1992. Effective in December 1993 with the contributions to the trusts
under the funding arrangement approved by stockholders at the 1993 Annual
Meeting, trust investment performance was credited on supplemental profit-
sharing balances. The Company therefore had no liability for supplemental
profit-sharing balance investment earnings for 1994 and no earnings credits
on supplemental profit-sharing balances are disclosed for 1994 in the "All
Other Compensation" column. Earnings credited on supplemental profit-sharing
balances under the Company's Supplemental Retirement Plan for 1993 and 1992
were as follows:
<TABLE>
<CAPTION>
1993 1992
-------- -------
<S> <C> <C>
William J. Alley......................................... $105,408 $72,151
Thomas C. Hays........................................... 51,731 34,857
Arnold Henson............................................ 48,677 33,812
John T. Ludes............................................ 20,579 13,374
</TABLE>
In order to fund the Company's obligations to provide supplemental profit-
sharing benefits under the Company's Supplemental Retirement Plan as
described above, the Company made contributions in 1993 and 1994 under the
trust funding arrangements approved by stockholders at the 1993 Annual
Meeting. These contributions for 1993 funded the after-tax equivalent of
supplemental profit-sharing accruals which had been unfunded for all years
since supplemental profit-sharing credits were added to the Supplemental
Retirement Plan in 1987. The amounts contributed in each year after 1993
will typically fund the supplemental profit-sharing accruals for that year
only. The following contributions to the trusts are not listed in the "All
Other Compensation" column as they were made to fund the supplemental
profit-sharing liabilities described above and already disclosed therein:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
William J. Alley........................................ $109,203 $673,427
Thomas C. Hays.......................................... 32,586 353,608
Arnold Henson........................................... 45,912 310,988
John T. Ludes........................................... 18,670 131,606
</TABLE>
The Company made additional contributions in 1993 and 1994 to the trusts to
fund its obligations for supplemental retirement benefits under the
Company's Supplemental Retirement Plan to Messrs. Alley, Hays, Henson and
Ludes. See the Pension Plan Table on page 13 for a description of the amount
of these supplemental retirement benefits.
(7) In 1994, the Company substituted a split-dollar life insurance program for
certain executive officers in lieu of the group term life insurance program
under which they were previously covered. The death benefits payable on
behalf of the executives under the split-dollar life insurance program, and
the amount of premiums contributed by the executives, remain the same as
under the group term life insurance program which had been available to all
salaried employees, including executives, on the same terms and conditions.
All insurance proceeds from the split-dollar life insurance program in
excess of each executive's death benefit are payable to the Company, and
the program is designed for the Company to recover at least its aggregate
10
<PAGE>
premium cost. The Company has elected to prepay its share of the full
premiums for the policy in two annual installments in 1994 and 1995. The
amount set forth in the "All Other Compensation" column for 1994 includes
the dollar value of insurance premiums paid by the Company in 1994 as
reduced by the projected refund to the Company on the maturity of the policy
calculated on an actuarial basis as follows:
<TABLE>
<S> <C> <C>
William J. Alley........................................ $248,004
Thomas C. Hays.......................................... 161,439
Arnold Henson........................................... 148,767
John T. Ludes........................................... 94,058
</TABLE>
The following table provides information on the potential realizable dollar
value of grants of stock options made in 1994 to the end of the option term:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------
POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES
SECURITIES % OF TOTAL OF STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE OR FOR OPTION TERM
OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION -------------------------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SH) DATE(2) 5%($)(3) 10%($)(3)
- ---- ------------- --------------- ----------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
WILLIAM J. ALLEY........ -0- -0- -0- N/A -0- -0-
THOMAS C. HAYS.......... 130,000 5.07 35.125 9/26/04 2,871,690 7,277,427
ARNOLD HENSON........... -0- -0- -0- N/A -0- -0-
JOHN T. LUDES........... 60,000 2.34 35.125 9/26/04 1,325,395 3,358,812
PETER M. WILSON......... 38,000 1.48 35.125 9/26/04 839,417 2,127,248
ALL STOCKHOLDERS........ N/A N/A N/A N/A 4,381,457,183(4) 11,103,472,748(4)
ALL OPTIONEES........... 2,562,200 100 34.625 2/21/04 55,793,126 141,390,735
9/26/04
</TABLE>
- --------
(1) All options are for shares of Common Stock of the Company. No stock
appreciation rights ("SARs") were granted during 1994. Options are
generally not exercisable until the expiration of one year from the date of
grant.
(2) The 1990 Long-Term Incentive Plan (As Amended and Restated as of January 1,
1994) further provides that each option shall have a limited right
("Limited Right") which generally is exercised automatically on the date of
change in control of the Company, or (if later) the day after the
expiration of the six-month holding period for options not held for such
six-month period by those holders subject to Section 16 of the Securities
Exchange Act of 1934, as amended. The Limited Right generally entitles the
holder of the option to receive cash equal to the number of shares subject
to the option multiplied by the difference between the exercise price per
share and (i) the fair market value of such shares at the date of exercise
of the Limited Right if the option is an incentive stock option and (ii) if
the option is a nonqualified stock option, the greater of (a) the highest
price per share paid for shares of Common Stock of the Company acquired in
the change in control and (b) the highest fair market value of shares of
Common Stock at the time of exercise. The option is cancelled to the extent
of the exercise of the Limited Right.
(3) The dollar amounts under these columns result from calculations made at
assumed 5% and 10% annual rates of stock price appreciation that are
prescribed pursuant to rules of the Securities and Exchange Commission. The
inclusion of such amounts and the use of such rates are not intended to
forecast any possible future appreciation of the Company's stock price.
(4) No gain to the optionees is possible without an increase in the Company's
stock price, which will benefit all stockholders commensurately.
11
<PAGE>
The following table provides information concerning exercise of stock
options, alone or in tandem with SARs, made during 1994 by each of the five
most highly compensated executive officers:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
NUMBER OF SECURITIES UNDERLYING IN-THE-MONEY
SHARES UNEXERCISED OPTIONS/ OPTIONS/SARS
UNDERLYING SARS AT FY-END (#)-- AT FY-END ($)--
OPTIONS/SARS VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISED (#)(1) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ---- ---------------- ------------ --------------------- --------------------
<S> <C> <C> <C> <C>
WILLIAM J. ALLEY........ -0- -0- 819,850/ -0- 2,205,414/ -0-
THOMAS C. HAYS.......... -0- -0- 369,650/130,000 834,742/308,750
ARNOLD HENSON........... -0- -0- 224,350/ -0- 398,175/ -0-
JOHN T. LUDES........... -0- -0- 174,650/ 60,000 643,125/142,500
PETER M. WILSON......... 500 6,750 134,600/ 38,000 461,756/ 90,250
</TABLE>
- --------
(1) SARs permit an optionee, upon exercise of such rights and surrender of the
related option or part thereof, to receive a payment equal to the excess of
the fair market value (at the time of exercise) of the shares covered by
such option or part thereof so surrendered over the option price of such
shares. Such payment may be made in Common Stock of the Company (valued on
the basis of the fair market value of such Common Stock at the time of
exercise), in cash, or partly in cash and partly in Common Stock of the
Company, as the Compensation and Stock Option Committee may determine. No
SAR is exercisable prior to six months from the date of its grant.
The following table provides information concerning long-term compensation
awards made during 1994 to the five most highly compensated executive officers:
LONG-TERM INCENTIVE PLAN--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK
NUMBER PERFORMANCE PERIOD OR PRICE-BASED PLANS
OF SHARES, OTHER PERIOD UNTIL ------------------------
UNITS OR OTHER MATURATION OR THRESHOLD TARGET MAXIMUM
NAME RIGHTS (#)(1) PAYOUT (2) (#) (#) (#)
- ---- -------------- --------------------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
WILLIAM J. ALLEY. 16,320 3 yrs 8,160 16,320 24,480
THOMAS C. HAYS... 8,160 3 yrs 4,080 8,160 12,240
ARNOLD HENSON.... 5,875 3 yrs 2,938 5,875 8,813
JOHN T. LUDES.... 3,265 3 yrs 1,633 3,265 4,898
PETER M. WILSON.. 3,650 3 yrs 1,825 3,650 5,475
</TABLE>
- --------
(1) These figures represent the number of shares that will be awarded upon
attainment of the average consolidated return on equity target for the
performance period.
(2) The performance period began on January 1, 1994 and will end on December
31, 1996. As of December 31, 1994, two years remain until maturation or
payout. In the event that the executive retires, dies or becomes disabled or
his position is eliminated prior to December 31, 1996, the performance
awards are paid based on the average consolidated return on equity for the
number of completed years during the performance period prior to retirement,
death, disability or elimination of position.
The number of shares of Common Stock to be delivered to the executive
officers granted performance awards in 1994 is based on the level of
achievement of specified operating goals of the Company and its consolidated
subsidiaries during the performance period. The target amount will be
12
<PAGE>
earned if 100% of the targeted average consolidated return on equity is
achieved. The threshold amount will be earned at the achievement of 83 1/3% of
the targeted average consolidated return on equity and the maximum award amount
will be earned at the achievement of 125% of the targeted average consolidated
return on equity. In addition, cash dividend equivalents will be paid only to
the extent that the performance goals are achieved.
RETIREMENT PLANS
The following table sets forth the highest estimated annual retirement
benefits payable to persons in the specified compensation and years of service
classifications upon retirement at normal retirement date, assuming election of
an annuity for the life of the employee only, under the retirement plans of the
Company and those of its domestic subsidiaries under which executive officers
of the Company would be entitled to benefits:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ESTIMATED ANNUAL RETIREMENT BENEFITS
FOR REPRESENTATIVE YEARS OF CREDITED SERVICE
---------------------------------------------------------
REMUNERATION 10 15 20 25 30 35
------------ -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C>
$ 500,000 $ 75,000 $112,500 $150,000 $187,500 $ 225,000 $ 262,500
600,000 90,000 135,000 180,000 225,000 270,000 315,000
700,000 105,000 157,500 210,000 262,500 315,000 367,500
800,000 120,000 180,000 240,000 300,000 360,000 420,000
900,000 135,000 202,500 270,000 337,500 405,000 472,500
1,000,000 150,000 225,000 300,000 375,000 450,000 525,000
1,100,000 165,000 247,500 330,000 412,500 495,000 577,500
1,200,000 180,000 270,000 360,000 450,000 540,000 630,000
1,300,000 195,000 292,500 390,000 487,500 585,000 682,500
1,400,000 210,000 315,000 420,000 525,000 630,000 735,000
1,600,000 240,000 360,000 480,000 600,000 720,000 840,000
1,800,000 270,000 405,000 540,000 675,000 810,000 945,000
2,000,000 300,000 450,000 600,000 750,000 900,000 1,050,000
2,200,000 330,000 495,000 660,000 825,000 990,000 1,155,000
2,400,000 360,000 540,000 720,000 900,000 1,080,000 1,260,000
</TABLE>
The estimated annual retirement benefits set forth in the preceding table
include any offset for Social Security benefits required under the applicable
plan.
The compensation covered by the retirement plans under which executive
officers are to receive retirement benefits includes essentially compensation
that would fall under the categories of "Salary" and "Bonus" in the Summary
Compensation Table shown above on page 8 averaged over the five highest
consecutive years. The years of service of Messrs. Alley, Hays, Henson and
Ludes are 28, 30, 13 and 16, respectively.
The Supplemental Retirement Plan of the Company provides supplemental
retirement benefits in an amount equal to the difference between the benefits
payable under the Retirement Plan and the amount that would be payable under
the Company's tax qualified Retirement Plan formula in excess of the Internal
Revenue Code limitation on maximum annual benefits payable from tax qualified
retirement plans (currently the lesser of $120,000 and the employee's average
compensation during his three highest-paid consecutive years of employment).
The Supplemental Retirement Plan also provides for payments of any amount by
which the Retirement Plan benefit is reduced because of the limitation
contained in the Internal Revenue Code on the combination of the benefits
payable thereunder and additions to the Company's tax qualified Profit-Sharing
Plan. The Internal Revenue Code also provides that benefits under tax qualified
plans cannot be based on compensation in excess
13
<PAGE>
of a certain limit (currently $150,000). The Supplemental Retirement Plan
provides the difference between the amount paid under the Retirement Plan and
the amount that would have been paid thereunder if the $150,000 limit on
compensation were not included therein. In calculating retirement benefits, no
credit is given for service in excess of 35 years. The Pension Plan Table
includes these Supplemental Retirement Plan benefits.
Under the Supplemental Retirement Plan, persons holding the office of Vice
President or a more senior office with the Company will each receive an annual
benefit equal to 52 1/2% of his average compensation during the five highest-
paid consecutive calendar years of employment, provided he continues in
employment until the earlier of normal retirement age of 65 or completion of 35
years of service. This 52 1/2% benefit is the same as the benefit in the 35
year column of the Pension Plan Table set forth above. The benefit is reduced
by 1 1/2% of such average compensation for each year that such officer retires
prior to age 65 unless he has completed 35 years of service. The benefit is
also reduced by benefits under the Company's Retirement Plan, the retirement
plans of subsidiaries of the Company and of any prior employer. This
supplemental retirement benefit covers Messrs. Alley, Hays, Henson and Ludes.
The Company has an agreement with Mr. Hays which will provide him with an
annual retirement benefit of 52 1/2% of his average compensation during the
five highest-paid consecutive calendar years of employment if Mr. Hays becomes
disabled or dies prior to normal retirement date of age 65 or if the Company
terminates his employment for reasons other than cause, or Mr. Hays terminates
his employment for good reason (as defined in the agreement). For purposes of
determining Mr. Hays' highest five-year average earnings, his compensation at
the date of his termination of employment is deemed to continue until normal
retirement date. This benefit to Mr. Hays is reduced by the amount paid to him
under the Company's tax qualified Retirement Plan and Supplemental Retirement
Plan.
As noted in Note (3) under the Summary Compensation Table on page 8, Messrs.
Alley, Hays, Henson, Ludes and certain other executive officers have
established trusts to which the Company (or the Company's subsidiary by which
the executive is employed) make contributions to fund currently the Company's
supplemental retirement and profit-sharing obligations. The Company also
continues to maintain "rabbi" trusts with a bank for the purpose of paying its
supplemental retirement and profit-sharing obligations that are not fully
funded by the executives' trusts.
SEVERANCE AND EMPLOYMENT AGREEMENTS
The Company has entered into agreements with Messrs. Hays and Ludes to
provide certain severance benefits for them in the event of their termination
of employment following a change in control (as defined in the agreements) of
the Company. Each agreement provides generally that if, subsequent to a change
in control, the Company terminates the employment of the officer other than for
disability or cause, or if the officer elects to terminate his employment for
good reason, as provided in the agreement, the officer will then receive three
years of base salary, three times the amounts for one year of his incentive
compensation award and Profit-Sharing Plan allocation (and the supplemental
profit-sharing allocation under the Supplemental Retirement Plan), three
additional years of service and earnings credit under the retirement plans and
agreements of the Company and three additional years of coverage under the
life, health, accident, disability and other employee plans of the Company,
provided that if any such person is within three years of his normal retirement
date, the multiplier of three is reduced for each category of payment to the
number of years and portion thereof remaining prior to such date. Each
agreement also provides for payment of an amount necessary to restore any
benefit diminution under the agreement and the Company's stock option plans and
1990 Long-Term Incentive Plan if the special excise tax imposed under Section
280G of the Internal Revenue Code is applicable. Assuming a change in control
and a termination date of February 1, 1995, the amounts payable under such
agreements would have been $4,320,771 and $2,666,433 for Messrs. Hays and
Ludes, respectively. The Company has established "rabbi" trusts
14
<PAGE>
with a bank for the purpose of paying these amounts. The foregoing amounts do
not include the three additional years of service and earnings credit under
retirement plans and agreements or the three additional years of coverage under
life, health, accident, disability and other employee plans to which the
foregoing persons would be entitled. Upon termination of employment following a
change in control, the executive would also be entitled to retain his split-
dollar life insurance policy in order to provide the death benefit with any
insurance proceeds after death in excess of the death benefit to be returned to
the Company. The amounts payable are reduced by any amounts payable under the
agreements referred to in the succeeding paragraph providing severance benefits
after termination of employment without regard to a change in control. Messrs.
Alley and Henson were covered under identical change in control agreements
during their period of employment prior to retirement.
The Company has also entered into agreements with Messrs. Hays and Ludes to
provide severance benefits without regard to a change in control if the Company
terminates the employment of the officer for reasons other than for disability
or cause. The severance agreements provide the same benefits as those described
in the preceding paragraph for a termination of employment following a change
in control except that the multiplier is three in the case of Mr. Hays and two
in the case of Mr. Ludes. Assuming a termination of employment on February 1,
1995, the amounts payable under the severance agreements, which would represent
their base salary, Article XII award and Profit-Sharing Plan allocation (and
the supplemental profit-sharing allocation under the Company's Supplemental
Retirement Plan), would have been $4,320,771 and $1,777,622 for Messrs. Hays
and Ludes, respectively. The foregoing amounts do not include the additional
years of service and earnings credit under retirement plans and agreements or
the additional years of coverage under life, health, accident, disability and
other employee plans to which the foregoing persons would be entitled. Messrs.
Alley and Henson were covered under identical severance agreements during their
period of employment prior to retirement in which the multiplier was three in
the case of Mr. Alley and two in the case of Mr. Henson.
Gallaher Limited has an agreement with Mr. Wilson which provides, among other
things, for his employment by Gallaher Limited at a salary rate, effective
February 1, 1994, of (Pounds)314,000 (approximately $481,111, based on the
average exchange rate for 1994) and for reimbursement of all reasonable
expenses incurred by him in the performance of his duties under the agreement.
The agreement is terminable by Gallaher Limited upon three years' written
notice. The agreement also provides that in the event the employment of Mr.
Wilson is terminated, or Mr. Wilson elects to terminate his employment for good
reason, after a change in control of the Company or Gallaher Limited, he is to
receive up to three times his salary, incentive compensation and certain
benefits.
DIRECTOR COMPENSATION
Each director who is not an officer or employee of the Company or one of its
subsidiaries receives an annual fee of $35,000 for services as a director and
an additional $1,500 for services on each committee of which the director is a
member but not chairman. The chairman of the Executive Committee receives an
additional annual fee of $30,000 for services as chairman; the chairmen of the
Audit Committee, the Capital Appropriations Committee and the Compensation and
Stock Option Committee receive an additional annual fee of $9,500 each for
services as chairmen; and the chairmen of the Corporate Committee on Cultural
Diversity and Workforce Issues, the Corporate Responsibility and Public Affairs
Committee, the Environmental and Safety Committee and the Nominating Committee
receive an additional annual fee of $6,000 each for services as chairmen. A
non-employee director receives an additional annual fee of $16,000 for services
as a member of the Executive Committee. The Company has an agreement with Mr.
Anderson to defer payment of the fees to which he is entitled as a director,
including any fees for committee service. Interest on the deferred amounts is
accrued quarterly based on the average quarterly treasury bill rate. During
1994, the Company also paid the cost of group life insurance coverage for
directors who were not officers or employees of the Company as follows: Mr.
Anderson, $2,911; Dr. Ewers, $823; Mr. Johnstone, $1,299; Mr. Kelley, $2,246;
Mr. Kirschner, $1,257; Mr. Lohman, $1,299; and Mr. Pistor, $1,442. Directors
who are not
15
<PAGE>
officers or employees of the Company are also covered under the Company's
matching gift program whereby the Company will make a 200% match of gifts
totalling up to $15,000 by the director to an eligible charitable or
educational institution.
Each director who is not an officer or employee of the Company or one of its
subsidiaries is also paid 200 shares of Common Stock of the Company each year
under the Company's Stock Plan for Non-employee Directors which was approved by
the stockholders at the 1990 Annual Meeting (see Item 3 for a proposal to
approve a new Stock Plan for Non-employee Directors). Directors who are not
officers or employees of the Company or one of its subsidiaries are covered
while on Company business by the business travel accident insurance policy
which covers employees of the Company generally.
Each director who is not an officer or employee of the Company or one of its
subsidiaries who voluntarily retires or decides not to stand for reelection as
a director will receive an annual retirement benefit equal to the annual
director's fee (exclusive of fees for committee service and fees for service on
boards of directors of subsidiaries) in effect at the time of retirement to be
paid for the number of years equal to such director's full years of service.
Such benefit is payable beginning in the year in which such director retires or
attains age 65, whichever occurs later, and continues to be payable to the
director's beneficiary in the event of the director's death until all such
payments have been made. The benefit is also payable to the director's
beneficiary if the director dies prior to retirement after having completed at
least three years of service.
Each director who is not an officer or employee of the Company is covered
under the Company's charitable award program for non-employee directors. Under
the program, the Company will make future contributions of up to $500,000 for
each such director to charitable, educational or other qualified organizations
designated by the director. The contribution would be made after the death of
the director and the Company's obligation is funded by Company owned life
insurance policies.
Mr. Alley has waived his fees for service on Board committees, except his fee
for service as Chairman of the Executive Committee, for the period that he
serves as Chairman of the Executive Committee. Mr. Alley will not participate
in the charitable award program for 1995 and is not covered under the non-
employee director retirement program.
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE ON EXECUTIVE COMPENSATION
The Company's executive compensation program is designed to help the Company
attract, motivate and retain the executive resources that it needs in order to
maximize its return to stockholders.
Toward that end, the program attempts to provide:
. competitive levels of salary and total compensation
. annual incentive compensation that varies with the annual financial
performance of the Company and its various operating companies
. long-term incentive compensation to reward long-term financial
performance.
The Company intends to provide levels of total compensation for executive
officers that are competitive with compensation for executives with comparable
responsibilities in corporations of similar size. The competitive information
is derived from a variety of sources, principally surveys conducted by Towers
Perrin, the outside consultants of the Compensation and Stock Option Committee
(the "Committee"), and Management Compensation Services, a division of Hewitt
Associates, of compensation awarded by over 200 large, publicly-held
corporations with revenues in excess of $2 billion participating in the surveys
(the "survey group"). Most of the companies in the survey group are in the S&P
500 and some are in the Peer Group index described on page 22. The Committee
relies on a broad array of companies for comparative analysis of executive
compensation because the Committee believes that the Company's competitors for
executive talent are more varied than the Peer Group chosen for comparing
stockholder return in the Performance Graph on page 22.
16
<PAGE>
The Company's executive compensation program consists of three basic
elements--base salaries, annual incentive bonuses and long-term incentives. The
long-term incentive plans of the Company and its operating companies covering
executive officers of the Company are designed to ensure that incentive
compensation varies based on the profitability of the Company and its various
operating companies and on the performance of the Company's Common Stock. In
addition, these plans provide the flexibility to reward executives based on
their individual performance.
Committee Responsibilities
The Company's By-laws require that the salaries of officers employed by the
Company and having the offices of Vice President and above be fixed by the
Committee. The Committee also has the authority to allot to executive officers
employed by the Company and certain other officers a portion of the incentive
compensation available for allotment under Article XII of the Company's By-
laws. In addition, the Committee grants awards to executive officers and
certain other officers under the Company's 1990 Long-Term Incentive Plan, which
as described below generally consisted in 1994 of stock options and performance
share awards. With respect to executive officers who are employed by the
Company's subsidiaries, the Committee recommends the salaries of such executive
officers to the relevant subsidiary company's board of directors or appropriate
committee. Further, unless the amount is fixed pursuant to the relevant
subsidiary company plan, the incentive bonuses awarded to such executive
officers are reviewed by the Committee prior to formal approval by the
subsidiary board or appropriate committee. The Committee also reviews the
design of the Company's executive compensation programs, assesses their
competitiveness and effectiveness and makes recommendations with respect to
them.
Each of the elements of the program is described in the report below,
including a discussion of the specific actions taken by the Committee with
respect to the Chairman of the Board and Chief Executive Officer and the other
executive officers for 1994.
Base Salaries
At the end of 1993, the Committee determined that, as a result of the
potential decrease in the Company's 1993 profits primarily due to the unsettled
conditions in the domestic tobacco industry, salaries of the Chairman and other
executive officers would not be increased effective January 1, 1994 as would
ordinarily have been the case. As a result, salaries of the Chairman of the
Board and Chief Executive Officer and other executive officers employed by the
Company were the same for 1994 as for 1993. The 1994 salary levels of these
executive officers for 1994 were on average approximately 2% above the median
of the survey group.
The salary increases of the Company's executive officers who are chief
executives of subsidiary companies were determined primarily based on the
Committee's subjective assessment of the performance of the respective
subsidiary company. Salary increases ranged from 4.1% to 6% with a 10.6%
increase for Mr. Wilson to reflect his designation as Chairman and Chief
Executive of Gallaher Limited in February 1994. The average salary rate
increase for these executive officers was 5% which compares to the average
salary increase of 5.8% for this category of executive officers in the survey
group. An executive officer who was the chief executive of a subsidiary company
and retired during the year did not receive a salary increase.
Annual Incentive Bonuses
Article XII of the By-laws of the Company provides for payment of incentive
compensation to members of the Management Group (defined pursuant to Article
XII), including executive officers. An amount equal to 1/2 of 1% of adjusted
income from continuing operations (as defined in Article XII) is made available
for allotment annually if a cash dividend has been paid on the Common Stock of
the Company. Of the amount available for incentive compensation, 18% is
allotted to the Chairman of the Board and the remainder is available to the
Management Group on the following basis: 30% of
17
<PAGE>
the total amount available is allotted by Article XII to the members of the
Management Group in proportion to their salaries, and the balance may be
allotted by the Committee, entirely at the Committee's discretion, as to
amounts and individuals. The Committee has the authority to reduce the amount
of any allotment to the Chairman or a member of the Management Group. Payments
are made in cash as soon as practicable after determination of the amount
available.
In determining the total incentive award for each executive officer other
than the Chairman of the Board, the Committee for 1994 followed its past
practice of generally increasing or decreasing the total incentive compensation
award to each executive officer depending upon the increase or decrease in the
Company's earnings from which Article XII payments are made available for
allotment. The amount made available for allotment under Article XII for 1994
increased 16.3% over 1993 and thus the Committee determined that the 1994
Article XII award for executive officers other than the Chairman of the Board
should be increased generally by 10% with certain exceptions for reasons of
internal equity and market competitiveness. The incentive compensation award
for Mr. Ludes was increased by an additional $100,000 based on the performance
of the operating company for which he was primarily responsible and the
assumption of new operating responsibilities in contemplation of his new
position as President and Chief Operating Officer of the Company effective
January 1, 1995. The incentive compensation award for another executive officer
was increased by an additional $25,000 for exceptional work related to the sale
of The American Tobacco Company subsidiary.
Incentive compensation awards for executive officers of the Company who are
employed by subsidiary companies are determined under the incentive
compensation plans of those subsidiary companies. These plans generally provide
for the establishment of target awards as a percentage of salary and the
payment of a percentage of the target award based on the attainment of certain
corporate income and individual achievement goals. Mr. Wilson participated in
an incentive compensation plan for key employees of Gallaher Limited. Under
such plan, an amount equal to 0.389% of consolidated profits before tax (as
defined in such plan) is made available for allotment annually. Of the amount
made available for incentive compensation, 18.5% is allotted to the Chairman of
Gallaher Limited.
Other Considerations with Respect to the Chairman's Compensation
The annual incentive compensation for Mr. William J. Alley as Chairman under
Article XII increased by 16.3% from his 1993 annual incentive compensation.
This portion of his compensation is based strictly on a stockholder-approved
formula related to the pre-tax earnings performance of the Company as explained
under Annual Incentive Bonuses above. As a result of the salary freeze for 1994
as noted above, Mr. Alley did not receive a salary increase for 1994. Mr.
Alley's salary level for 1994 placed him at 13% above the median of the survey
group.
In September 1994, the Committee made a restricted stock award to Mr. Alley
for 16,320 shares of the Company's Common Stock. The award was made to induce
Mr. Alley, who was retiring at the end of 1994, to continue as a member of the
Board of Directors of the Company and as Chairman of its Executive Committee
after retirement. The vesting of the shares was conditioned on Mr. Alley
remaining in the employ of the Company through the end of 1994 and thereafter
being willing to serve as a member of its Board of Directors and Chairman of
its Executive Committee until the end of 1995. At the time of the grant, the
Committee noted the then pending sale of The American Tobacco Company
subsidiary and the possible sale of the Company's life insurance business and
believed that the assistance of Mr. Alley during those transactions and the
subsequent transition period would be in the best interest of the Company. The
amount of 16,320 restricted shares is equal to 10% of Mr. Alley's final stock
option grant awarded in 1993 which is the same formula that the Committee has
used in determining the number of target performance award shares to be made to
executive officers and is also the same formula that the Committee had applied
in granting restricted stock awards prior to 1992.
18
<PAGE>
Long-Term Incentives
Under the Company's 1990 Long-Term Incentive Plan, the Committee can grant to
key employees of the Company and its subsidiaries a variety of long-term
incentives, including nonqualified stock options, incentive stock options,
stock appreciation rights, restricted stock, performance awards, dividend
equivalents and other stock-based incentives.
In 1994, the Company granted incentive stock options, nonqualified stock
options and performance share awards to its executive officers. The options
have an exercise price not less than the fair market value of the stock on the
date of grant. The options generally become exercisable one year from the date
of grant, and expire 10 years from the date of grant. Benefits to an executive
officer from stock options will be realized only in the event of an increase in
the market value of the Company's Common Stock. The performance share awards
are grants of Company Common Stock that are contingent upon the achievement by
the Company and its subsidiaries of specified average return on equity targets
over the performance period of 1994 to 1996. The number of shares of Common
Stock to be delivered to the executive officers granted performance awards in
1994 varies with the level of achievement during the performance period. The
target amount will be earned if 100% of the targeted consolidated return on
equity is achieved. Fifty percent of the target amount will be earned at the
achievement of 83 1/3% of the targeted average consolidated return on equity
and no amount will be earned below such level. The maximum award of 150% of the
target amount will be earned at the achievement of 125% of the targeted average
consolidated return on equity. In establishing these goals, the Committee
considered the Company's average return on equity in recent years as well as
the return on equity over a similar period of the companies comprising the
Standard & Poor's 500. As a result, the awards are designed to provide a
maximum share payment only if the Company's return on equity were to exceed
that achieved by more than 50% of the Standard & Poor's 500 companies in recent
years. In addition, the recipients of the performance awards will receive cash
dividend equivalents at the time of payment of the performance shares based on
the number of performance shares actually earned. Mr. Alley as Chairman did not
receive a stock option grant for 1994 but did receive a performance award
during 1994 with the number of performance shares to be paid to him, if target
goals are achieved, set at 10% of his 1993 stock option award shares.
The Committee intends that stock options and performance awards serve as a
significant piece of the executives' total compensation package, and thus they
are granted in consideration of present and anticipated performance, as well as
past performance. Annual and long-term incentives make up the major portion of
the total compensation of executive officers. Moreover, the stock options and
performance awards are intended to offer the executive officers significant
long-term incentives to increase their efforts on behalf of the Company and its
subsidiaries, to focus managerial efforts on enhancing stockholder value and to
align the interests of the executives with the stockholders. As indicated
above, the Committee's compensation philosophy is to have long-term incentives
that pay more for superior performance and less if performance does not achieve
that level. The Committee, in making its determinations in 1994 with respect to
stock option and performance award grants to the individual senior executives
was guided by the percentage of the individual's base salary that the estimated
value of the stock options and performance awards would comprise. The Committee
sets the percentage of base salary that the long-term incentive would represent
at a level based on a comparison to the value of long-term incentives awarded
to similarly-compensated executives in the survey group, based on the outside
consultants' survey of competitive practice regarding the percentage of base
salary represented by long-term incentives. The Committee used an option
pricing valuation method for purposes of making such comparison. The Committee
granted stock options and performance awards to executive officers employed by
the Company to place them on average at the 72nd percentile of the survey
group. The number of performance award shares to be paid if target goals are
met is set at 10% of the stock option award shares. These grants continue the
Committee's practice of providing executive officers with annual long-term
incentive grants that are somewhat
19
<PAGE>
above median competitive levels, but within the overall range of competitive
practice as recommended by Towers Perrin, the Committee's outside consultants.
In determining the level of grants for the executive officers, the Committee
considered several factors in its subjective judgment without any of these
factors being weighted greater than any other: first, that the Company and its
subsidiaries comprised a large and diverse organization with over 100 operating
subsidiaries in more than six highly competitive industries doing business on a
worldwide basis; second, the complex task facing the executive officers in
managing and furthering the performance, growth and prospects of such an
organization; and third, the high level of performance and results achieved by
the Company and its subsidiaries in recent years, particularly during a time
when extremely difficult economic conditions have been adversely affecting
principal markets in which many of the businesses operate, as well as the steps
taken by the executive officers to enhance stockholder value. Based on these
factors, the Committee determined that it was desirable to establish a
percentile target sufficiently above the median percentile of the competitive
survey group so as to provide additional incentive to the executive officers to
increase their efforts on behalf of the Company, its subsidiaries and its
stockholders and also to reward strong performance.
In addition, certain of the executive officers who are also chief executives
of operating companies were granted additional performance awards payable in
cash contingent upon the achievement by the relevant operating companies of
specified operating company contribution targets over specified performance
periods. The amount of cash payment is equal to the value of shares of the
Company's Common Stock underlying 5% of the executive officer's stock option
granted immediately prior to the performance award grant if the operating
company achieves the minimum performance goal and the amount will be increased
up to 20% (37.5% in the case of one executive officer) of the value of the
executive officer's prior stock option grant if the maximum performance goal is
attained. In setting the level of these grants, the Committee considered the
factors set forth in the preceding paragraph. The performance goals are
generally based on increases in operating company contribution for the
operating company employing the executive officer during the performance period
commencing January 1, 1994 and terminating December 31, 1996. Operating company
contribution is defined as operating income excluding amortization of
intangibles.
The Committee approved a split-dollar life insurance program for executive
officers during 1994. The program will provide the same death benefits as under
the prior group term life insurance program with executive officers being
charged the same amount of premiums. In the event of retirement of the
executive officer, he would retain the policy in order to provide the post-
retirement death benefit. The program is designed so that there will be
returned to the Company from the insurance policy after payment of the death
benefit an amount equal to or greater than the premiums paid by the Company.
The Committee believes that the split-dollar life insurance program is
desirable in that it provides greater security to executive officers for their
death benefits, when compared to the group term life insurance program which
could be terminated at any time, without a material increase in cost to the
Company.
The Omnibus Budget Reconciliation Act of 1993 amended the Internal Revenue
Code in order to limit the allowable tax deduction that may be taken by the
Company for compensation paid to the Chairman and the four other highest paid
executive officers required to be named in the Summary Compensation Table. The
limit is $1 million per executive per year, provided that compensation payable
solely on account of the attainment of performance goals is excluded from the
limitation. It is the Committee's intent to qualify to the extent practicable
the annual incentive bonus under Article XII and stock options and performance
awards under the 1990 Long-Term Incentive Plan as performance based
compensation in order that these elements of compensation may qualify for the
exclusion from the $1 million limit so that the Company's tax deduction will
not be so limited for a significant portion of the compensation of these
executive officers. In order to qualify compensation under Article XII and the
1990 Long-Term Incentive Plan for the performance based compensation
20
<PAGE>
exclusion, management submitted and stockholders approved amendments to these
programs at the 1994 Annual Meeting.
Compensation and Stock Option Committee
Eugene R. Anderson, Chairman
John W. Johnstone, Jr.
Wendell J. Kelley
Charles H. Pistor, Jr.
January 30,
1995
The following individuals, who were executive officers of the Company during
1994, served as members of the boards of directors of Gallaher Limited, a
subsidiary of the Company, and The Franklin Life Insurance Company, a former
subsidiary of the Company and participated in setting compensation for two
employees of those subsidiaries who were executive officers and directors of
the Company during 1994, and have signed this Report for this purpose.
William J. Alley
Thomas C. Hays
Arnold Henson
Robert L. Plancher
December 31, 1994
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As members of the boards of directors of Gallaher Limited, a subsidiary of
the Company, and The Franklin Life Insurance Company, a former subsidiary of
the Company, Messrs. William J. Alley, Thomas C. Hays, Arnold Henson and Robert
L. Plancher, who are executive officers of the Company, participated in setting
compensation for Messrs. Peter M. Wilson and Howard C. Humphrey, officers of
those respective subsidiary companies who were also directors of the Company
during the last year. None of these individuals is a member of the Compensation
and Stock Option Committee of the Company. The members of the Compensation and
Stock Option Committee of the Company are set forth above.
21
<PAGE>
AMERICAN BRANDS, INC. STOCK PRICE PERFORMANCE
(WITH DIVIDEND REINVESTMENT)
[GRAPH APPEARS HERE]
<TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG AMB, S&P 500 INDEX AND PEER GROUP INDEX
<CAPTION>
Measurement period S&P 500 Peer Group
(Fiscal year Covered) AMB Index Index
- --------------------- --------- --------- ---------
<S> <C> <C> <C>
Measurement PT -
12/31/89 $ 100 $ 100 $ 100
FYE 12/31/90 $ 121.7 $ 96.9 $ 83.5
FYE 12/31/91 $ 136.9 $ 126.4 $ 115.1
FYE 12/31/92 $ 128.4 $ 136.1 $ 126.5
FYE 12/31/93 $ 111.8 $ 149.8 $ 136.6
FYE 12/31/94 $ 133.7 $ 151.7 $ 138.8
</TABLE>
- --------
* Excludes American Brands, Inc.
Peer Group Index
The Peer Group consists of publicly traded companies in industry segments
corresponding to the Company's five core businesses and its specialty
businesses: the Tobacco segment comprises Philip Morris Companies, Inc., B.A.T
Industries, Loews Corporation and Hanson PLC; the Distilled Spirits segment
comprises Brown-Forman Corporation, The Seagram Company, Ltd., Allied-Lyons
PLC, Grand Metropolitan PLC and Guinness PLC; the Life Insurance segment
comprises Transamerica Corporation, American International Group, Inc., Aetna
Life and Casualty, Torchmark Corporation and Capital Holding Corporation; the
Hardware and Home Improvement segment comprises Masco Corporation, American
Woodmark Corporation, The Black & Decker Corporation and The Stanley Works; the
Office Products segment comprises Herman Miller Inc., Mead Corporation, Hunt
Manufacturing Co. and Avery Dennison Corporation; and the Specialty segment
comprises The United States Shoe Corporation, ProGroup, Inc. and T. & S. Stores
PLC.
The weighted average total return of the entire Peer Group, for each year, is
calculated as follows: (1) the total return of each Peer Group member is
calculated by dividing the change in market value of a share of its common
stock, assuming quarterly dividend reinvestment, by the cumulative value of a
share of its common stock at the beginning of the year; (2) each Peer Group
member's total return is then weighted within its industry segment based on its
market capitalization at the beginning of the year, relative to the market
capitalization of the entire segment, and the sum of such weighted returns
results in a weighted average total return for that segment; and (3) each
segment's weighted average total return is then weighted based on the
percentage of sales, excluding excise taxes, of that segment
22
<PAGE>
of the Company for the year, as compared with total Company sales, excluding
excise taxes, and the sum of such weighted returns results in a weighted
average total return for the entire Peer Group.
The Peer Group Index reflects the weighted average total return for the
entire Peer Group calculated for the five year period from a base of 100.
The Report of the Compensation and Stock Option Committee on Executive
Compensation and the American Brands, Inc. Stock Price Performance graph shall
not be deemed to be "soliciting material" or to be "filed" with the Securities
and Exchange Commission or subject to Regulation 14A or 14C of the Regulations
of the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or to the liabilities of Section 18 of
the Exchange Act.
ITEM 2
ELECTION OF INDEPENDENT ACCOUNTANTS
The Board of Directors recommends that the stockholders elect Coopers &
Lybrand L.L.P. as independent accountants for the Company for the year 1995. In
line with this recommendation the Board of Directors intends to introduce at
the forthcoming Annual Meeting the following resolution (designated herein as
Item 2):
"RESOLVED, that Coopers & Lybrand L.L.P. be and they are hereby elected
independent accountants for the Company for the year 1995."
In accordance with the Company's practice, a member of Coopers & Lybrand
L.L.P. will attend the Annual Meeting to make a statement if he desires to do
so and to respond to any appropriate questions that may be asked by
stockholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ITEM 2.
ITEM 3
APPROVAL OF THE STOCK PLAN FOR
NON-EMPLOYEE DIRECTORS
At the Annual Meeting in 1990, stockholders approved the American Brands,
Inc. Stock Plan for Non-employee Directors pursuant to which 200 shares of
Common Stock of the Company are granted annually to each director who is not an
employee of the Company or any subsidiary thereof as part of the director's
fee. That Plan expired last year. A new American Brands, Inc. Stock Plan for
Non-employee Directors (the "Non-employee Directors' Plan") is being proposed
for approval. The new Non-employee Directors' Plan is substantially similar to
the former Plan except that 300 shares will be granted annually to each non-
employee director and 20,000 shares, rather than 7,500 shares, are reserved for
issuance thereunder. The new Non-employee Directors' Plan will be effective for
the years 1995 through 1999, inclusive. A non-employee director will receive
such shares only with respect to any year in which such person is serving as a
non-employee director immediately following the Annual Meeting of stockholders
in each such year. The shares will be delivered as soon as practicable after
the Annual Meeting. The shares awarded under the Non-employee Directors' Plan
will be in addition to, and not in lieu of, the annual fee and fees for service
on committees paid to a non-employee director.
The Board of Directors believes that the Non-employee Directors' Plan will
aid the Company in attracting and retaining non-employee directors of
exceptional ability by supplementing their cash
23
<PAGE>
fees and further aligning their interests with the other stockholders by
increasing their proprietary interest in the Company. Many large corporations
provide stock-based plans to non-employee directors and the new Non-employee
Directors' Plan will continue to keep the Company in conformity with this
practice. In addition, the Company has not increased non-employee director
compensation since 1993 while director fees at other corporations have been
trending upward since then. An annual award of 300 shares is being proposed in
order to permit the Company to maintain its competitive position by increasing
non-employee director compensation in a manner so as to increase the equity
ownership of the non-employee directors in the Company. Accordingly, the Board
recommends its adoption by the stockholders. The Non-employee Directors' Plan
is set forth in full in Exhibit A, and the description of the Non-employee
Directors' Plan which appears below is qualified in its entirety by reference
thereto.
The Non-employee Directors' Plan will be administered by the Salary Committee
(the "Salary Committee") appointed by the Board of Directors. None of the
members of the Salary Committee may receive shares of Common Stock under the
Non-employee Directors' Plan. Because of the automatic nature of the
eligibility for and the grant of shares under the Non-employee Directors' Plan
and because each eligible non-employee director will receive the same fixed
number of shares, the Salary Committee will not have any discretion with
respect to the amount of or the terms of any individual grant.
An aggregate of 20,000 shares of Common Stock is authorized to be issued to
non-employee directors under the Non-employee Directors' Plan. The total number
of shares may consist of authorized but unissued shares or shares held in the
Company's treasury. The number of shares of Common Stock which a non-employee
director may receive per year and the aggregate number of shares which may be
issued to non-employee directors under the Non-employee Directors' Plan are
subject to adjustment for stock splits, stock dividends and similar events.
The terms of the Non-employee Directors' Plan permit a non-employee director
to elect to defer receipt of shares of Common Stock issued under such Plan
until a specified date or until the occurrence of a specified event in the
future. While receipt of any such shares is deferred, dividends that would have
been paid with respect to such shares had receipt thereof not been deferred are
also deferred and will accrue interest quarterly from the respective dates such
dividends would have been paid at a rate equal to the average quarterly United
States Treasury bill rate and be delivered to the non-employee director on such
specified date or upon the occurrence of such specified event. Upon the
occurrence of a change in control as defined below, any shares of Common Stock
with respect to which a non-employee director has elected to defer receipt and
any accrued and unpaid dividends (and accrued interest thereon), shall then be
delivered to such non-employee director.
A change in control is defined in the Non-employee Directors' Plan to have
occurred upon (a) the acquisition by a person or group of beneficial ownership
of more than 20% of the outstanding voting stock of the Company, (b) a majority
of the Board of Directors ceasing to be continuing directors (as defined in the
Non-employee Directors' Plan), (c) a merger, consolidation or sale of
substantially all the assets of the Company in a transaction in which the
Company's stockholders immediately prior to the transaction do not have at
least 50% of the voting power of the surviving, resulting or transferee entity
or following which any person or group has beneficial ownership of more than
20% of the voting power of the surviving, resulting or transferee entity or (d)
the occurrence of any other event reportable by the Company as a change in
control in a filing with the Securities and Exchange Commission on Form 8-K.
The definition does, however, exclude (i) acquisitions of stock that would
otherwise constitute a change in control made by the Company or an employee
benefit plan (or related trust) sponsored or maintained by the Company and (ii)
a merger or consolidation with a corporation that does not trigger the change
in control provisions.
24
<PAGE>
The Board of Directors retains the right to amend or terminate the Non-
employee Directors' Plan, subject to the terms of the Plan, provided that any
amendment must comply with the requirements of the rules and regulations
promulgated under Section 16(b) of the Securities Exchange Act of 1934 so that
the receipt of shares by a non-employee director shall be exempt from Section
16(b).
Under current federal income tax rules, a non-employee director will realize
ordinary income, and the Company will be entitled to a tax deduction, for the
year that the shares of Common Stock are delivered to the non-employee director
in an amount equal to the fair market value of the shares.
The following table reflects the number of shares granted to each non-
employee director under the former Stock Plan for Non-employee Directors
approved by the stockholders in 1990 and the number of shares proposed to be
granted under the proposed Stock Plan for Non-employee Directors:
<TABLE>
<CAPTION>
FORMER PLAN PROPOSED PLAN
POSITION NUMBER OF SHARES NUMBER OF SHARES
-------- ---------------- ----------------
<S> <C> <C>
Non-employee Director.................... 200 300
</TABLE>
RESOLUTION CONSTITUTING ITEM 3
The resolution (designated herein as Item 3) to approve the Stock Plan for
Non-employee Directors is as follows:
"RESOLVED, that, as conditionally adopted by the Board of Directors, the
American Brands, Inc. Stock Plan for Non-employee Directors submitted to
this Annual Meeting be and it is hereby approved."
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR ITEM 3.
ITEM 4
- ------
RESOLUTION REQUESTING ELIMINATION OF ELECTION OF
DIRECTORS BY CLASSES PROPOSED BY TWO STOCKHOLDERS
The Company is informed that John J. Gilbert, whose address is 29 East 64th
Street, New York, New York 10021-7043, a record holder of 400 shares of Common
Stock and claiming an additional family interest of 1,200 shares, and/or John
C. Henry, a record holder of 12,800 shares of Common Stock, whose address is 5
East 93rd Street, New York, New York 10128, intend to introduce at the Annual
Meeting the following resolution (designated herein as Item 4):
"RESOLVED: That the stockholders of American Brands, Inc., assembled in
annual meeting in person and by proxy, hereby request that the Board of
Directors take the needed steps to provide that at future elections of
directors new directors be elected annually and not by classes, as is now
provided and that on expiration of present terms of directors their
subsequent election shall be on an annual basis."
The proponents have furnished the following statement setting forth the
reasons advanced by them in support of their proposal:
"Continued very strong support along the lines we suggest were shown at the
last annual meeting when 36.15%, an increase over the previous year, 4,474
owners of 59,080,561 shares, were cast in favor of this proposal. The vote
against included 11,104 unmarked proxies.
"Last year ARCO, to its credit, voluntarily ended theirs, stating that when
a very high percentage, 34.6%, desired it to be changed to an annual
election it was reason enough for them to change it.
25
<PAGE>
Several other companies have also followed suit such as Pacific
Enterprises, Katy Industry, Hanover Direct, Campbell Soup and others.
"Because of normal need to find new directors and because of environmental
problems and the recent avalanche of derivative losses and many groups
desiring to have directors who are qualified on the subjects, we think that
ending the stagger system of electing directors is the answer. In addition,
some recommendations have been made to carry out the Valdez 10 points. The
11th, in our opinion, should be to end the stagger system of electing
directors and to have cumulative voting.
"Recently Equitable Life Insurance Company, which is now called Equitable
Companies, converted from a policy owned company to a public stockholder
meeting. Thanks to AXA, the controlling French insurance company not
wanting it they now do not have a staggered board.
"The Orange and Rockland Utility Company had a terrible time with the
stagger system and its 80% clause to recall a director. The chairman was
involved in a scandal affecting the company. Not having enough votes the
meeting to get rid of the chairman had to be adjourned. Finally, at the
adjourned meeting enough votes were counted to recall him.
"If you agree, please mark your proxy for this resolution; otherwise it is
automatically cast against it, unless you have marked to abstain."
BOARD OF DIRECTORS STATEMENT ON ITEM 4
Under the corporate law of Delaware, the State in which the Company is
incorporated, the change contemplated by the proposal would require an
amendment to the Company's Certificate of Incorporation which must first be
approved by the Board of Directors and then submitted to a vote of the
stockholders. A vote in favor of Item 4, therefore, would constitute a request
that the Board initiate this amendment. The Board does not believe, however,
that such an amendment would be in the best interests of the Company or its
stockholders.
In 1986, the stockholders approved an amendment to the Company's Certificate
of Incorporation to provide for the current division of the Board by class,
with one class elected each year for a three-year term. Fully 86.9% of the
votes cast with respect to that proposal were cast in its favor.
The Board believes that a classified Board enables the Company to plan for a
reasonable period into the future and thereby provide for continuity of
corporate policies. The Board also believes that flexibility is achieved by the
election of one-third of the directors annually, while stability is retained
because a majority of the directors at all times will have had prior experience
in the management of the Company's business. In addition, the classified Board
would preclude the immediate removal of all incumbent directors by a person
seeking a change in control of the Company and thereby would benefit all of the
Company's stockholders as the incumbent directors would then be in a position
to act to protect the stockholders' value in the Company. Surveys of corporate
board structures conducted by certain organizations independent of the Company
have shown that more than half of the corporations included in the surveys
maintain classified boards. For the foregoing reasons, the Board believes that
the amendment contemplated by Item 4 is not in the best interests of the
Company. Resolutions substantially similar to Item 4 were rejected by the
stockholders at each of the Annual Meetings from 1989 through 1994.
THE BOARD RECOMMENDS THAT YOU VOTE AGAINST ITEM 4.
26
<PAGE>
ITEM 5
- ------
RESOLUTION REQUESTING CANCELLATION OF
COMPANY PENSIONS FOR OUTSIDE DIRECTORS
PROPOSED BY ONE STOCKHOLDER
The Company is informed that Howard H. Witsma, whose address is 665 S.
Skinker Blvd., 11G, St. Louis, Missouri 63105-2350, a record holder of 300
shares of Common Stock, intends to introduce at the Annual Meeting the
following resolution (designated herein as Item 5):
"RESOLVED: We the stockholders assembled in person and by proxy, do request
that the Board of Directors take the necessary steps so that (i) the
pensions currently granted to 'outside' directors be reviewed with an eye
towards cancellation and (ii) no such pensions be granted in the future nor
increased, if granted, without the direct and specific vote of such
stockholders assembled in Annual Meeting."
The proponent has furnished the following statement setting forth the reasons
advanced by him in support of the proposal:
"REASONS: Although it has become commonplace for 'outside' directors to be
pensioned, these people are the employees of the stockholders and not the
Company. These ladies and gentlemen are currently being handsomely
remunerated for their services in the form of retainers, per diems, and
expenses for their work for the Company. Further these same ladies and
gentlemen are otherwise employed, or are retired with pensions, and are
being paid for their services at their place of primary employment. Such
'double dipping' is not in the interests of we, the stockholders and owners
of the Corporation, nor fair to us. While we certainly require top talent
as our directors, there are many corporations today, despite what
management may say to the contrary, where this practice is not permitted.
"Last year 9,869 proxies representing 43,607,713 shares were cast in favor
of this proposal. The vote against included 10,938 unmarked proxies."
BOARD OF DIRECTORS STATEMENT ON ITEM 5
The Company has a policy of paying retirement benefits to each non-employee
director who voluntarily retires or decides not to stand for reelection. The
annual retirement benefit is equal to the annual basic director's fee in effect
at the time of retirement and is paid for the number of years equal to the
director's full years of service. The benefit is payable beginning in the year
in which the director retires or attains age 65, whichever occurs later, and
continues to be payable to the director's beneficiary in the event of the
director's death until all such payments have been made. The benefit is also
payable to the director's beneficiary if the director dies prior to retirement
after having completed at least three years of service.
The Board believes that paying a portion of the total compensation for
outside directors in retirement benefits is appropriate and that the Company's
retirement policy for outside directors assists it in remaining competitive
with other major corporations so that the Company may attract and retain
persons of the highest quality to serve on your Board of Directors. The
retirement benefit provides an incentive to join the Board, and to remain long
enough to gain experience and knowledge of the Company's businesses. Payment of
retirement benefits also recognizes the ever increasing time commitment,
diligence and risks associated with Board service. An independent benefits
consulting firm reports that over 67% of the 132 major publicly-held companies
that it surveyed provide retirement benefits for their outside directors.
27
<PAGE>
The Board is opposed to the proposal for an additional reason. The proposal
would require the termination of retirement benefits being paid to directors
that have already retired and cancellation of retirement benefits that have
already accrued for directors currently serving. The Company's retirement
policy was an inducement for non-employee directors to join and remain in
service on the Board. The Board believes that the termination of these already
earned retirement benefits would be a breach of the Company's obligations. A
resolution substantially similar to Item 5 was rejected by the stockholders at
the 1994 and 1993 Annual Meetings.
THE BOARD RECOMMENDS THAT YOU VOTE AGAINST ITEM 5.
ITEM 6
- ------
RESOLUTION REQUESTING STOCKHOLDER APPROVAL OF
CHANGE OF CONTROL COMPENSATION AGREEMENTS
The Company is informed that William Steiner, whose address and stock
ownership will be furnished by the Company promptly upon receipt of any oral or
written request therefor, intends to introduce at the Annual Meeting the
following resolution (designated herein as Item 6):
"RESOLVED, that the shareholders recommend that the board of directors
adopt a policy against entering into future agreements with officers and
directors of this corporation which provide compensation contingent on a
change of control of the corporation, unless such compensation agreements
are submitted to a vote of the shareholders and approved by a majority of
shares present and voting on the issue."
The proponent has furnished the following statement setting forth the reasons
advanced by him in support of the proposal:
"Lucrative severance contracts awarded to senior corporate executives which
provide compensation contingent on a change of control, usually through a
merger or acquisition of the corporation, are known as 'golden parachutes'.
These contracts are awarded without shareholder approval.
"The practice of providing these large cash awards to a small group of
senior corporate managers without shareholder approval has been a subject
of public outcry. In 1988, the U.S. Senate in emphasizing the potential
conflict of interest between management and shareholders created by these
agreements voted ninety eight to one to require shareholder approval of
golden parachutes which exceed three times annual compensation.
"Although final action was not taken, it is clear to me that the
overwhelming vote in favor of the measure reflects public sentiment against
golden parachutes. A shareholder vote would allow the corporation's owners
to decide for themselves whether golden parachutes are in their best
interests.
"As a founding member of the Investors Rights Association of America it is
clear to me that requiring a shareholder vote is necessary to address the
conflicts of interest between management and shareholders that arise in the
awarding of golden parachutes.
"I URGE YOUR SUPPORT. VOTE FOR THIS RESOLUTION."
BOARD OF DIRECTORS STATEMENT ON ITEM 6
The Board of Directors disagrees with the proponent's assertion that the
agreements that the Company has entered into with its senior executives,
providing for compensation during a period following termination of employment
subsequent to a change of control of the Company, are in
28
<PAGE>
conflict with management's duty to the stockholders. On the contrary, these
agreements are intended to minimize, rather than create, a conflict of interest
that senior executives might have in the event of a change of control contest
for the Company. By providing a measure of financial security for possible job
loss following a takeover, the agreements help senior executives to assess a
takeover bid objectively and to advise the Board whether the bid is in the best
interests of the Company and its stockholders without fear of personal
financial loss. Furthermore, as there may be an extended period from the time
the change of control is proposed until it is completed, the Company could be
at a disadvantage if it were to lose senior executives during that time. The
agreements are an incentive for senior executives to remain with the Company
and protect stockholder interests during a contest for control.
The agreements provide that no benefit is paid unless (i) a change of control
occurs and (ii) the executive's employment is thereafter terminated. The
agreements thus have no current cost to the Company and are similar to other
such agreements which exist at many publicly held companies. The agreements
will not prevent a business combination that would increase stockholder value.
The determination of whether the Company should enter into such an agreement
with one of its executives is made by the Compensation and Stock Option
Committee which is made up of outside members of the Board of Directors who are
not executives of the Company. In those circumstances when the Compensation and
Stock Option Committee believes that an agreement of this type would be in the
best interests of the Company and its stockholders, the Committee needs the
flexibility to provide it efficiently and without delay. This ability would be
significantly diminished by a requirement to submit the agreement to
stockholders for approval. Unless the Company were to incur the substantial
expense of convening a special stockholders' meeting for the purpose, such
agreements could only be entered into once a year after approval at an annual
meeting of stockholders. In today's competitive environment, a corporation
cannot afford to wait one year to implement a needed and desirable agreement.
The Board believes that providing senior executives with a reasonable measure
of financial security in the event of termination of employment following a
change of control helps to recruit and maintain key executives and also helps
to ensure their objectivity at a time when a change of control of the Company
may be at stake.
THE BOARD RECOMMENDS THAT YOU VOTE AGAINST ITEM 6.
ITEM 7
- ------
RESOLUTION REQUESTING EQUAL EMPLOYMENT
REPORT PROPOSED BY TWO STOCKHOLDERS
The Company is informed that the Missionary Oblates of Mary Immaculate of
Texas, with the co-sponsorship of the Evangelical Lutheran Church in America
Board of Pensions, whose respective addresses and stockholdings will be
furnished by the Company promptly upon receipt of any oral or written request
therefor, intend to introduce at the Annual Meeting the following resolution
(designated herein as Item 7):
"We believe there is a strong need for corporate commitment to equal
employment opportunity. We also believe a clear policy opposing all forms
of discrimination is a sign of a socially responsible corporation. Since a
substandard equal employment opportunity record leaves a company open to
expensive legal action, poor employee morale and even the loss of certain
types of business, we believe it is in the company's and the shareholder's
interests to have information on our company's equal employment record
available.
29
<PAGE>
"One of the country's largest institutional investors, the California
Public Employees' Retirement System, includes workplace performance
guidelines as part of their corporate performance criteria. The Department
of Labor's Glass Ceiling Commission has for the last four years conducted
studies with the help of a number of corporations and in 1994 held public
hearings to ascertain the status of equality and diversity in Corporate
America. In 1995 the Commission will report to the President their
recommendations.
"As a major employer we are in a position to take the lead in ensuring
that employees receive fair employment opportunities and promotions. We
believe a report containing the basic information requested in this
resolution keeps the issue high on top management's and the Board of
Directors' agenda and reaffirms our public commitment to equal employment
opportunity and programs responsive to the concerns of all employees.
Publicizing our standards is helpful to our investors and the companies
with whom we do business.
"We are requesting that EEO information already gathered for the purpose
of complying with government regulations be made available to company
shareholders on request. The format of the report requested is not the
central question. Many corporations openly release their EEO-1 information
in annual reports or public interest booklets.
"Different companies use different styles in telling their story to
shareholders. Capital Cities/American Broadcasting Company, Bristol-Myers-
Squibb and Travellers produced a substantial magazine style report.
Campbell Soup produced a straightforward four page document. We feel this
request is fair and reasonable.
"RESOLVED: The shareholders request our company prepare a report at
reasonable cost available to shareholders and employees reporting on the
following issues. This report, which may omit confidential information,
shall be available by September 1995.
1. A chart identifying employees according to their sex and race in each of
the nine major Equal Employment Opportunity Commission defined job
categories for 1992, 1993, 1994 listing either numbers or percentages in
each category.
2. A summary description of any Affirmative Action policies and programs to
improve performances, including job categories where women and
minorities are underutilized.
3. A description of any policies and programs oriented specifically toward
increasing the number of managers, who are qualified females and/or
belong to ethnic minorities.
4. A description of how our company publicizes our company's affirmative
action policies and programs to merchandise suppliers and service
providers.
5. A description of any policies and programs directing the purchase of
goods and services to minority- and/or female-owned business
enterprises."
BOARD OF DIRECTORS STATEMENT ON ITEM 7
The Company long has been and will continue to be strongly committed to the
principle of equal employment opportunity. The policy of the Company opposing
all forms of discrimination has been clearly stated. The policy of the Company
and each of its subsidiaries is to comply fully with the spirit and letter of
federal, state and local anti-discrimination laws. Nondiscriminatory and equal
employment opportunity is to be provided for all qualified applicants and
employees in all personnel actions, including recruiting, job assignment,
training and educational opportunity, promotion, layoff and compensation and
benefits.
30
<PAGE>
The corporate equal employment opportunity policy has been and is
communicated to employees in various Company documents and by posting on
bulletin boards. Supervisors are informed that they should base decisions on
employment in accord with this policy. Equal employment training sessions are
held from time to time for employees and managers and have included sensitivity
programs on harassment in the workplace.
Many of the subsidiary companies for some time have maintained formal
affirmative action programs applicable to government contractors. These
programs have been and are available for review by employees. Recruiting
agencies, labor unions and suppliers of goods and services are advised of these
programs and are asked to execute government required EEO certifications.
Statistical information required by law is filed with government agencies.
Corporate committees have been established to review and monitor corporate
equal employment opportunity policies and procedures and affirmative action
programs where applicable. One such committee, which includes members of the
Board of Directors, reviews various policies and programs of the Company that
support the goal of cultural diversity and considers workforce issues relating
to the effective utilization of, and opportunities for, employees of the
Company.
The Board believes that the additional report requested by this proposal is
neither appropriate nor necessary. As described above, equal employment
opportunity has long been high on the agenda of management and the Board of
Directors and is part of the ordinary business operations of the Company.
Adoption of the proposal is not needed to enhance the Company's already strong
commitment to equal employment opportunity nor ensure that the Company's
employees receive fair employment opportunities. Much of the information
requested by the proponents is duplicative and maintained locally by the more
than 100 active subsidiaries of the Company. The preparation of a report in the
format requested by the proponents would require an unnecessary expenditure of
time and money.
THE BOARD RECOMMENDS THAT YOU VOTE AGAINST ITEM 7.
ITEM 8
- ------
RESOLUTION REQUESTING SPIN OFF OF TOBACCO
BUSINESS PROPOSED BY TWO STOCKHOLDERS
The Company is informed that Gregory N. Connolly, D.M.D., with the co-
sponsorship of John Slade, M.D., whose addresses and stockholdings will be
furnished by the Company promptly upon receipt of any oral or written request
therefor, intend to introduce at the Annual Meeting the following resolution
(designated herein as Item 8):
"WHEREAS many institutional investors believe our Company would produce
more financial returns if our tobacco business would be separated from our
other businesses;
-- Former Philip Morris CEO, Michael A. Miles, advanced a plan supported by
many institutional investors to split the company into separate food and
tobacco businesses as a way to invigorate the company's depressed share
price;
-- After Hamish Maxwell, the influential former chairman of Philip Morris
Cos., sold 16% of his shares in the embattled tobacco company on May 31,'
The Wall Street Journal reported that large institutional investors are
still aggressively pushing for such a move and are demanding a meeting with
Mr. Maxwell to lobby for a split' (6/29/94);
-- Some institutional investors have been uneasy about [cigarette
companies'] potential legal liability for the health problems of smokers,
and think that such problems have depressed the share price of tobacco
companies' stock (The New York Times) 9/22/94);
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<PAGE>
-- A consumer boycott of Philip Morris' products has been launched by
INFACT, a consumer activist group. It successfully brought infant formula
companies to change their practices and General Electric to sell a good
portion of its nuclear weapons business. Among INFACT's demands to end the
boycott include the company's need to stop marketing to children and young
people, stop influencing public policy, and pay its just share of health
care costs associated with tobacco use;
-- With the stock of the Company depressed in the past year from previous
years' highs, the threat of a consumer boycott does not auger well for any
rapid rebound;
-- Increased litigation coming from states and private insurers indicate
new and ominous challenges that might undermine the value of the stock. The
stock value might be increased if tobacco division(s) would be separated
from the other divisions;
-- The day following Kmart Corporation's announcement that it would sell
majority stakes in three of its specialty businesses in August, 1994, its
stock jumped over 2%;
-- Even though our Company has been in the process of shedding its American
Tobacco Company division, it still owns Gallaher Ltd. of England, making it
liable.
"RESOLVED that shareholders ask management to take steps to accomplish a
separation of the Corporation's tobacco business from all its non-tobacco
businesses by January 1, 1996."
BOARD OF DIRECTORS STATEMENT ON ITEM 8
In 1994, the Company sold its domestic tobacco subsidiary, The American
Tobacco Company. The Company therefore no longer owns a business that
manufactures and sells cigarettes in the United States. The Company has
recently completed the sale of its life insurance subsidiary and announced the
sale of several other subsidiaries. These transactions reflect that the Board
and management take decisive action to enhance stockholder value.
The issues of acquiring, maintaining and divesting subsidiaries in different
businesses, and especially the timing thereof, should properly be decided by
the Board and management, which have the necessary information and resources to
evaluate them and take appropriate action at the proper time. Decisions
relating to the nature of the Company's businesses, including whether to
continue to own a company that manufactures and sells tobacco products outside
of the United States, must be based on detailed financial and economic
information as well as legal and other considerations. The Board believes that
any action that would force the Company to dispose of a significant business
segment, such as the international tobacco operations of Gallaher Limited, by a
specific date is disadvantageous to stockholders.
In 1990, a proposal was submitted requesting that the Company not be involved
in the production or marketing of tobacco products after 1999 and received only
3.7% of the votes cast on the matter. In 1992, substantially the same proposal
requesting that the Board cease the production, packaging and marketing of
cigarettes by the year 2000, received only 4% of the votes cast on the matter.
THE BOARD RECOMMENDS THAT YOU VOTE AGAINST ITEM 8.
ITEM 9
- ------
RESOLUTION REQUESTING SPECIAL NICOTINE REPORT
PROPOSED BY TWO STOCKHOLDERS
The Company is informed that Providence Trust and Immaculate Heart Missions,
Inc., whose respective addresses and stockholdings will be furnished by the
Company promptly upon receipt of any oral or written request therefor, intend
to introduce at the Annual Meeting the following resolution (designated herein
as Item 9):
32
<PAGE>
"WHEREAS nicotine has been recognized by the Surgeon General, by the
Commissioner of the Food and Drug Administration (FDA), and by the FDA's
Advisory Committee on Drug Abuse as an addictive substance;
-- According to a July 14, 1994 article in The New England Journal of
Medicine, virtually all cigarettes sold in the U.S. today contain addictive
levels of nicotine;
-- When a cigarette is smoked, some of the nicotine in the smoke is
converted to nitrosamines, which are highly carcinogenic to the lung;
-- Because of technological advances, nicotine levels in tobacco products
and nicotine absorption by the consumer can now be readily manipulated and
controlled, unlike the situation that existed in the early 1950s, when,
according to the Federal Trade Commission, nicotine levels in cigarettes
were inherently viable;
-- The FDA Commissioner has found that at least some methods to control
nicotine are used by major manufacturers of tobacco products;
-- The technology exists to reduce the levels of nitrosamines produced in
cigarette smoke by altering the levels of other precursors besides
nicotine;
-- Other technology exists to reduce the levels of nitrosamines produced in
cigarette smoke by altering the levels of other precursors besides
nicotine;
"RESOLVED that the company issue a report to shareholders and to the
public, without revealing proprietary information and produced at a
reasonable cost, whether nicotine content in and absorption from its
tobacco products are deliberately controlled by the company and if the
reasons for any such control include the delivery of a reliable dose of
nicotine to and/or the promotion of nicotine absorption by the customer.
The report shall also include the levels of nitrosamines found in smoke
from our Company's current cigarette brands."
The proponents have furnished the following statement setting forth the
reasons advanced by them in support of their proposal.
"Nicotine is both a highly addictive substance and a precursor to potent
carcinogens. Both its level and its absorbability asks for information on
the extent to which the company controls nicotine content and delivery in
its tobacco products and for information on the levels of nitrosamines in
the smoke of its cigarette brands."
BOARD OF DIRECTORS STATEMENT ON ITEM 9
In 1994, the Company sold its domestic tobacco subsidiary, The American
Tobacco Company. The Company therefore no longer owns a business that
manufactures and sells cigarettes in the United States. The Company continues
to own Gallaher Limited, which is engaged primarily in the manufacture and sale
of tobacco products in the United Kingdom.
The Board of Directors believes that there is no reason to commission a
report to examine the levels of nicotine contained in the brands of cigarettes
manufactured by Gallaher Limited. By virtue of their composition, different
brands of cigarettes yield different levels of various substances, including
"tar" and nicotine. These "tar" and nicotine levels are routinely assessed by
test methods approved by the United Kingdom government and are regularly
analyzed, monitored and made available to the public. The requested report
would unnecessarily duplicate information that is already widely available. The
Board believes that the commission of such a report would be an unwarranted and
wasteful expenditure of Company resources.
THE BOARD RECOMMENDS THAT YOU VOTE AGAINST ITEM 9.
33
<PAGE>
CERTAIN INFORMATION REGARDING SECURITY HOLDINGS
The following tabulation sets forth information with respect to the
beneficial ownership of equity securities of the Company by all directors and
executive officers of the Company as a group (19 persons) at February 9, 1995.
The information is based on information received by the Company from the
directors and officers, from the Corporate Employee Benefits Committee of the
Company and the Trustee of the Profit-Sharing Plan of the Company and from the
committees administering the profit-sharing plans of subsidiaries of the
Company.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP PERCENTAGE
TITLE OF CLASS (a)(b)(c) OF CLASS
-------------- -------------------- ----------
<S> <C> <C>
Common Stock 3,047,826 shares 1.6%
</TABLE>
- --------
(a) For information as to voting and investment power with respect to shares
owned by directors and executive officers, see Note (c) to the table under
"Election of Directors". To the best of the Company's knowledge, each
executive officer who is not a director has sole voting and investment
power with respect to shares owned by him, other than with respect to
shares included in Note (b) below that may be acquired upon exercise of
options, and with respect to shares included in Note (c) below. The
Trustee of the Profit-Sharing Plan of the Company has agreed to vote the
shares of Common Stock held in trust in accordance with instructions
received from members of the Plan and shares as to which instructions are
not received are voted by the Trustee proportionally in the same manner as
shares as to which the trustee has received instructions.
(b) The number shown above includes 51,615 shares of Common Stock held on
December 31, 1994 by the Trustee of the Profit-Sharing Plan of the Company
(including those referred to in Note (a) to the table under "Election of
Directors") which number is equivalent as of that date to the undivided
proportionate beneficial interests of the directors and executive officers
of the Company in all such shares, and 2,583,950 shares (including those
referred to in Note (b) to the table under "Election of Directors"), of
which the directors and executive officers had the right to acquire
beneficial ownership pursuant to the exercise on or before April 10, 1995
of options granted by the Company. Inclusion of such 2,583,950 shares does
not constitute an admission by the directors and executive officers that
they are the beneficial owners of such shares.
(c) The number shown above includes 60 shares of Common Stock held by an
executive officer's child. The executive officer disclaims beneficial
ownership of these shares. The number shown above also includes (i) 12,062
shares held in various family trusts for the benefit of or with a
remainder to various family members of another executive officer and
director, as to which shares such executive officer and director disclaims
beneficial ownership, and (ii) 12,900 shares held by the wife of another
executive officer as trustee of a family trust, as to which shares such
executive officer disclaims beneficial ownership. The shares referred to
in clause (i) of the immediately preceding sentence are referred to in
Note (c) to the table under "Election of Directors".
To the best of the Company's knowledge, no one person was the beneficial
owner of more than 5% of the outstanding voting securities of the Company or of
more than 5% of any class of voting securities of the Company at February 9,
1995.
34
<PAGE>
SUBMISSION OF STOCKHOLDER PROPOSALS AND NOMINATIONS
The Company's Certificate of Incorporation contains procedures for
stockholder nomination of directors and the Company's By-laws contain
procedures for other stockholder proposals to be presented before annual
stockholder meetings. The Certificate of Incorporation provides that any record
owner of stock entitled to be voted generally in the election of directors may
nominate one or more persons for election as a director at a stockholders'
meeting only if written notice is given to the Secretary of the Company of the
intent to make such nomination. The notice must be given 120 days in advance of
the annual meeting and must include: (i) the name and address of each
stockholder who intends to appear in person or by proxy to make the nomination
and of the person or persons to be nominated; (ii) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming them) pursuant to which the nomination is to be
made by the stockholder; (iii) such other information regarding each nominee
proposed by such stockholder as would have been included in a proxy statement;
and (iv) the consent of each nominee to serve if elected.
With respect to stockholder proposals of other business to be considered at
the annual meeting of stockholders, the By-laws provide that a stockholder of
record must give written notice to the Secretary of the Company no later than
120 days before the meeting. The notice must set forth: (i) a brief description
of the business to be brought before the meeting, the reasons for conducting
such business and any material interest in such business of such stockholder
and the beneficial owner, if any, on whose behalf the proposal is made and (ii)
as to the stockholder giving the notice and the beneficial owner, if any, on
whose behalf the proposal is made (a) the name and address of such stockholder,
as they appear on the Company's books, and of such beneficial owner and (b) the
class and number of shares of the Company which are owned beneficially and of
record by such stockholder and such beneficial owner. The By-laws further
provide that, notwithstanding the foregoing provisions, stockholders wishing to
have a proposal included in the Company's proxy statement shall comply with the
applicable requirements of the Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder and shall have the rights provided by Rule
14a-8 under such Act. In order to be eligible under Rule 14a-8 for inclusion in
the Company's proxy statement and accompanying proxy at the next annual meeting
of stockholders currently scheduled to be held on May 1, 1996, stockholder
proposals must be received by the Company on or before November 14, 1995.
A copy of the relevant Certificate of Incorporation and By-law provisions is
available upon written request to Mr. Louis F. Fernous, Jr., Vice President and
Secretary, American Brands, Inc., 1700 East Putnam Avenue, Old Greenwich,
Connecticut 06870. The person presiding at the meeting is authorized to
determine if a proposed matter is properly before the meeting or if a
nomination is properly made.
35
<PAGE>
MISCELLANEOUS
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION FOR ITS LAST FISCAL YEAR, INCLUDING ANY
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES THERETO, WILL BE MADE
AVAILABLE TO STOCKHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST TO MR. LOUIS F.
FERNOUS, JR., VICE PRESIDENT AND SECRETARY, AMERICAN BRANDS, INC., 1700 EAST
PUTNAM AVENUE, OLD GREENWICH, CONNECTICUT 06870. THE COMPANY WILL FURNISH ANY
EXHIBITS TO FORM 10-K TO EACH STOCKHOLDER REQUESTING THEM UPON PAYMENT OF A FEE
OF $.10 PER PAGE TO COVER THEIR COST.
The expense of the solicitation of proxies for this meeting, including the
cost of mailing, will be borne by the Company. In addition to mailing copies of
this material to stockholders, the Company will request persons who hold stock
in their names or custody, or in the names of nominees, for the benefit of
others to forward copies of such material to the beneficial owners of the stock
of the Company and to request authority for the execution of the proxies. To
the extent deemed necessary in order to assure sufficient representation at the
meeting, officers and regular employees of the Company will request the return
of proxies by telephone, facsimile or in person. In addition, the Company has
retained Kissel-Blake Inc., 25 Broadway, New York, N.Y. 10004, to aid in the
solicitation of proxies for a fee, including its expenses, estimated at
$49,000. The total expense to be borne by the Company will depend upon the
volume of shares represented by the proxies received promptly in response to
the notice of meeting.
Stockholders who do not intend to be present at the meeting are urged to send
in their proxies without delay. Prompt response is helpful, and your
cooperation will be appreciated.
March 3, 1995
36
<PAGE>
EXHIBIT A
AMERICAN BRANDS, INC.
STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
1. PURPOSE OF PLAN
The purpose of the American Brands, Inc. Stock Plan for Non-employee
Directors (the "Plan") is to enable American Brands, Inc. ("American") to
provide its Non-employee Directors (as defined below) with shares of common
stock of American ("Common Stock") and thereby to attract and retain non-
employee directors of exceptional ability and further align their interests
with those of the other stockholders of American by increasing their
proprietary interests in American.
2. ADMINISTRATION OF PLAN
The Plan shall be administered by the Salary Committee (the "Committee") of
the Board of Directors of American. None of the members of the Committee shall
be eligible to receive shares of Common Stock under the Plan or have been so
eligible for receipt within one year prior thereto. The Committee shall have
the power and authority to administer, construe and interpret the Plan, to make
rules for carrying it out and to make changes in such rules.
3. PARTICIPATION
All Non-employee Directors shall participate in the Plan. The term "Non-
employee Director" means a member of the Board of Directors of American who is
not at the time of receipt of shares of Common Stock pursuant to the Plan a
full-time employee of American or any subsidiary thereof.
4. PAYMENT OF SHARES OF COMMON STOCK
(a) Subject to all the terms and conditions of the Plan, each Non-employee
Director shall receive 300 shares of Common Stock per year for services as a
Non-employee Director during such year. To be entitled to receive such shares
with respect to any year, a Non-employee Director must be serving as such
immediately following the Annual Meeting of stockholders of American held
during such year. Except as otherwise provided in Section 4(b), certificates
representing such shares shall be delivered to such Non-employee Director as
soon as practicable thereafter.
(b) A Non-employee Director may elect to defer receipt of shares of Common
Stock under this Section 4. The election shall (i) be made in writing to the
Secretary of American before the November 1 immediately preceding the year in
which the shares of Common Stock are to be received, (ii) specify the future
date or dates on which the shares of Common Stock are to be paid or the future
event or events upon the occurrence of which the shares are to be paid and
(iii) be irrevocable. On each future date or upon the occurrence of each future
event so specified, certificates representing the shares whose receipt has been
deferred until such date or such future event shall be delivered to the Non-
employee Director, together with an amount representing the dividends on such
shares that would have been paid prior to such future date or such future event
if receipt of such shares had not been so deferred ("unpaid dividends"),
together, in the case of cash unpaid dividends, with interest thereon, accrued
quarterly from the respective dates such dividends would have been paid, at a
rate equal to the average quarterly United States Treasury bill rate. The
obligation of American to make payment of any deferred shares of Common Stock
or any unpaid dividends (and interest thereon) as provided in this Section 4(b)
is not required to be funded.
(c) An election by a Non-employee Director pursuant to Section 4(b) to defer
receipt of any shares of Common Stock shall confer no rights upon such Non-
employee Director, as a stockholder of the
A-1
<PAGE>
Company or otherwise, with respect to such shares, but shall confer only the
right to receive such shares and unpaid dividends (and interest thereon) as and
when provided in Section 4(b).
(d) Notwithstanding anything to the contrary in Section 4(b) or 4(c), in the
event a Non-employee Director has elected to defer receipt of shares of Common
Stock pursuant to Section 4(b) and in the event of such person's death prior to
receipt thereof, such shares and any unpaid dividends (and interest thereon)
provided for in Section 4(b) shall be promptly paid to the beneficiary or
beneficiaries designated by such person in writing to the Secretary of American
or, if no beneficiary has been so designated, to such person's estate.
(e) Notwithstanding anything to the contrary in Section 4(b) or 4(c), in the
event a Non-employee Director has elected to defer receipt of shares of Common
Stock pursuant to Section 4(b) and in the event of a Change in Control (as
defined in this Section 4(e)), such shares and any unpaid dividends (and
interest thereon) provided for in Section 4(b) shall be promptly paid to such
Non-employee Director. A "Change in Control" shall be deemed to have occurred
if (i) any person (as that term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in effect
on February 28, 1995) is or becomes the beneficial owner (as that term is used
in Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder, as in effect on February 28, 1995) of stock of American entitled to
cast more than 20% of the votes at the time entitled to be cast generally for
the election of directors, (ii) more than 50% of the members of the Board of
Directors of American shall not be Continuing Directors (which term, as used
herein, means the directors of American (A) who are members of the Board of
Directors on February 28, 1995 or (B) who subsequently became directors of
American and who were elected or designated to be candidates for election as
nominees of the Board of Directors, or whose election or nomination for
election by American's stockholders was otherwise approved, by a vote of a
majority of the Continuing Directors then on the Board of Directors), (iii)
American shall be merged or consolidated with, or, in any transaction or series
of transactions, substantially all of the business or assets of American shall
be sold or otherwise acquired by, another corporation or entity and, as a
result thereof, either (x) the stockholders of American immediately prior
thereto shall not directly or indirectly have at least 50% or more of the
combined voting power of the surviving, resulting or transferee corporation or
entity immediately thereafter or (y) any person (as that term is used in
Sections 13(d) and 14(d) of the Exchange Act, as in effect on February 28,
1995) is or becomes the beneficial owner (as that term is used in Section 13(d)
of the Exchange Act, and the rules and regulations promulgated thereunder, as
in effect on February 28, 1995) of more than 20% of the combined voting power
of the surviving, resulting or transferee corporation or entity, or (iv) any
change in control of American shall have occurred of a nature that would be
required to be reported in response to Item 1(a) of Form 8-K promulgated under
the Exchange Act as in effect on February 28, 1995, regardless of whether
American is at the time of such change in control subject to the reporting
requirement thereof. Notwithstanding the foregoing, a Change in Control shall
not be deemed to have occurred if an acquisition of stock that would otherwise
constitute a Change in Control pursuant to clause (i) or (iv) of the preceding
sentence is made by American or a direct or indirect subsidiary thereof, by any
corporation in a merger or consolidation that does not constitute a Change in
Control pursuant to clause (iii) of the preceding sentence or by any employee
benefit plan (or related trust) sponsored or maintained by American or a direct
or indirect subsidiary thereof.
(f) The right to receive shares of Common Stock, the receipt of which has
been deferred by a Non-employee Director pursuant to Section 4(b) shall not be
transferable by such Non-employee Director otherwise than by will or the laws
of descent and distribution or pursuant to a qualified domestic relations order
as defined in the Internal Revenue Code of 1986, as amended.
(g) The shares of Common Stock issued hereunder shall be in addition to any
other fees to which a Non-employee Director may be entitled.
A-2
<PAGE>
5. TAXES
Any taxes that are required to be withheld upon delivery of shares of Common
Stock issued pursuant to the Plan to a Non-employee Director shall be paid to
American in cash by such Non-employee Director unless deducted and withheld
from any cash fees payable by American to such Non-employee Director or paid by
such Non-employee Director in shares of Common Stock in an exempt transaction
under Section 16 of the Exchange Act.
6. LIMITATIONS AND CONDITIONS
(a) The total number of shares of Common Stock that may be issued to Non-
employee Directors under the Plan is 20,000. Such total number of shares may
consist, in whole or in part, of authorized but unissued shares or shares held
in American's treasury. The foregoing number may be increased or decreased by
the events set forth in Section 7 below.
(b) Prior to each issuance to a Non-employee Director of shares of Common
Stock pursuant to the Plan, such Non-employee Director must make
representations satisfactory to the Committee to the effect that such shares
are to be held for investment purposes and not with a view to or for resale or
distribution except in compliance with the Securities Act of 1933, as amended
(the "Securities Act"), and must give a written undertaking to American in form
and substance satisfactory to the Committee that he or she will not publicly
offer or sell or otherwise distribute such shares other than (i) in the manner
and to the extent permitted by Rule 144 promulgated by the Securities and
Exchange Commission under the Securities Act, (ii) pursuant to any other
exemption from the registration provisions of the Securities Act or (iii)
pursuant to an effective registration statement thereunder.
(c) Nothing contained herein shall be deemed to create the right in any Non-
employee Director to remain a member of the Board of Directors of American, to
be nominated for reelection or to be reelected as such or, after ceasing to be
such a member, to receive any shares of Common Stock under the Plan to which he
or she is not already entitled with respect to any year.
7. STOCK ADJUSTMENTS
In the event of any merger, consolidation, stock or other non-cash dividend,
extraordinary cash dividend, split-up, spin-off, combination or exchange of
shares, reorganization or recapitalization or change in capitalization, or any
other similar corporate event, the Committee may make such adjustments in (i)
the aggregate number of shares of Common Stock that may be issued under the
Plan as set forth in Section 6(a) and the number of shares that may be issued
to a Non-employee Director with respect to any year as set forth in Section
4(a), (ii) the kind of shares that may be issued under the Plan and (iii) the
amount and kind of payment that may be made in respect of unpaid dividends on
shares of Common Stock whose receipt has been deferred pursuant to Section
4(b), as the Committee shall deem appropriate in the circumstances. The
determination by the Committee as to the terms of any of the foregoing
adjustments shall be conclusive and binding.
8. AMENDMENT AND TERMINATION
(a) The Board of Directors of American shall have the power to amend or
terminate the Plan at any time; provided, however, that, to be effective, any
amendment of the Plan shall comply with the requirements of the rules and
regulations promulgated under Section 16(b) of the Exchange Act to the extent
necessary so that the receipt of shares of Common Stock by a Non-employee
Director under the Plan shall be exempt from such Section 16(b); and provided,
further, that no termination of the Plan shall adversely affect the rights of
any Non-employee Director with respect to any otherwise payable shares of
Common Stock whose receipt has been deferred or with respect to unpaid
dividends (and interest thereon) pursuant to Section 4(b). Notwithstanding the
preceding sentence, no amendment or modification of any provision of the Plan
relating to the amount, price and timing of
A-3
<PAGE>
any security that may be granted hereunder may be amended more often than once
in every six months, other than to comport with changes in the Internal Revenue
Code of 1986, as amended.
(b) Subject to any prior termination of the Plan by the Board of Directors of
American, shares of Common Stock shall be issuable under the Plan only with
respect to the calendar years 1995 through 1999 inclusive.
9. EFFECTIVE DATE
The Plan shall be subject to and effective upon its approval by the
stockholders of American.
A-4
<PAGE>
LOGO
THIS PROXY STATEMENT IS PRINTED ON
RECYCLED PAPER. THE ENTIRE
PUBLICATION IS RECYCLABLE.
<PAGE>
LOGO AMERICAN BRANDS INC. PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints T.C. HAYS, G.L. KLEMANN, II and J.T. LUDES
proxies, with power of substitution, to vote at the Annual Meeting (including
adjournments) of stockholders of American Brands, Inc., to be held May 2, 1995,
at the Stamford Center for the Arts, Stamford, Connecticut at 10:00 A.M., for
the election of nominees W.J. Alley, J.T. Ludes and P.M. Wilson as Class III
directors, on Items 2 through 9 referred to on the reverse side and described in
the Proxy Statement, and on any other business before the meeting, with all
powers the undersigned would possess if personally present. A majority (or, if
only one, then that one) of the proxies or their substitutes acting at the
meeting may exercise all powers hereby conferred.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE STOCKHOLDER. IF NO CONTRARY INDICATION IS MADE, THE PROXIES WILL VOTE FOR
---
THE ELECTION OF THE NOMINEES OF THE BOARD OF DIRECTORS, FOR ITEMS 2 AND 3 AND
---
AGAINST ITEMS 4 THROUGH 9 IF THEY ARE PRESENTED TO THE MEETING.
- -------
Please mark, date, sign as name appears
at right, and return this proxy in the
enclosed postpaid envelope.
(Executors, administrators, trustees,
custodians, etc., should indicate
capacity in which signing.)
Please
Sign Dated _______________
Here [RIGHT ARROW] ___________________________________ 1995
(DETACH HERE)
PLEASE EXECUTE AND RETURN YOUR PROXY PROMPTLY
(SEE ENCLOSED PROXY STATEMENT)
<PAGE>
P R O X Y
THE BOARD OF DIRECTORS RECOMMENDS VOTES FOR ITEMS 1 THROUGH 3
---
WITHHELD
FOR ALL FROM ALL
1. Election of Directors [_] [_]
FOR, EXCEPT individual nominee(s) (Messrs. Alley, Ludes and Wilson)
whose name(s) is written below:
------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Elect Coopers & Lybrand L.L.P.
independent accountants for 1995 [_] [_] [_]
3. Approve the Stock Plan for Non-
employee Directors [_] [_] [_]
THE BOARD OF DIRECTORS RECOMMENDS VOTES AGAINST ITEMS 4 THROUGH 9
-------
4. Request elimination of election
of directors by classes [_] [_] [_]
5. Request cancellation of Company
pensions for outside directors [_] [_] [_]
6. Request stockholder approval of
change of control compensation
agreements [_] [_] [_]
7. Request equal employment report [_] [_] [_]
8. Request spin off of tobacco business [_] [_] [_]
9. Request special nicotine report [_] [_] [_]
(TO BE SIGNED AND DATED ON THE OTHER SIDE)
(DETACH HERE)
P R O X Y
